For 34 years, retirees have probably viewed the yearly COLA as their birthright. But the uptick isn't an in-step raise -- it's a benefit increase tied to the consumer price index for urban wage earners and clerical workers (CPI-W). In fact, until 1986, the CPI-W had to go up by at least 3 percent before social security beneficiaries would qualify for a COLA. Today, there only needs to be an increase of 0.1 percent before the Social Security Administration approves a COLA.
This year, the CPI fell by a shocking 1.3 percent -- the first such drop since 1955 -- which reflects a 29.7 percent drop in the price of gasoline and a 21.6 percent drop in overall energy costs. Food prices have dropped 15 percent off their high from mid-2008.
Fortunately for retirees, the yearly social security adjustment can only go up. For some recipients of federal benefits, including overseas members of the military, cost-of-living decreases can translate to drops in benefits. But even if CPI-W goes down, social security benefits cannot be reduced. In that sense, COLA might be a misnomer: A cost-of-living adjustment always increases benefits, so Cost-of-Living Increase might be a better term. (And if recipients of COLI got their notification by e-mail, then we'd have to call it E-COLI.)
At any rate, today's unwelcome news will disappoint Social Security beneficiaries, especially after the 5.8 percent benefit increase they saw this year -- the largest annual leap since 1982. This jump, tied to rising fuel prices last year, went a long way in 2009, as falling energy prices and a falling CPI-W translated into a boon to people on fixed incomes. And even as U.S. workers have face falling incomes and rising unemployment, 55 million retirees received $250 checks in May, and President Obama is lobbying for a second wave of $250 stimulus checks early next year.
Politically, these checks make a lot of sense. The President is not responsible for cost-of-living increases in social security, but he gets a fair measure of the blame when they don't go through. With midterm elections coming in 2010, Obama can hardly be blamed for greasing the wheels with America's biggest voting bloc.
