Social Security COLA complainers should settle down

October 15, 2010

Let the whining begin.

Seniors learned this morning that they won’t receive a Social Security cost-of-living adjustment (COLA) in 2011.

Seniors vote, and with the mid-term elections approaching fast, many will be furious with Washington, President Obama and other villains real and imagined. The whining was in high gear even before the official COLA news came this morning, with media cranking out stories bemoaning the second straight year without a benefit increase as an injustice to seniors and terrible news for the economy.

Sorry, but it just ain’t so. Social Security is a critical program that keeps millions of seniors out of poverty every year; its benefits should be protected from deficit cutters and beefed up in the years ahead. But there’s nothing inequitable about Social Security payments staying flat next year. That’s because seniors are still enjoying a huge 2009 Social Security raise that was based on an economic fluke.

Social Security has had an automatic annual COLA feature since 1975, which is determined by the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In the third quarter of 2008 — just before the economy crashed — the CPI-W spiked temporarily, the result of a big increase in energy prices.

The result was a whopping 5.8 percent boost in Social Security benefits for 2009 — a raise that was especially generous considering the near-absence of inflation in the post-crash economy. Seniors on Social Security or disability benefits also received a one-time payment of $250 under the 2009 stimulus.

Social Security payments can’t fall under federal law, so benefits were held level in 2010, and will continue that way until the CPI numbers exceed the 2008 CPI-W index level. Today’s final third quarter CPI report determines that payments will stay steady again in 2011.

Alicia Munnell, director of the Center for Retirement Research at Boston College“Although some beneficiaries feel they are being treated unfairly, that’s not correct,” says Alicia Munnell (pictured right), director of the Center for Retirement Research at Boston College and one of the nation’s top experts on Social Security. “The cost of living, as measured by the CPI, is still lower than it was in the third quarter of 2008. In fact, most beneficiaries come out a little bit ahead because the real value of their benefits increased for a while.”

Could seniors use a raise? Sure.

But the U.S. Census Bureau reported recently that seniors are doing better — on a relative basis — than any other age group in the country. The poverty rate for Americans over 65 actually fell last year (from 9.7 percent to 8.9 percent), while it rose sharply for the population as a whole to 14.3 percent. That’s the highest rate since 1994. Forty-four million Americans were below the official poverty line, and one out of every five children was considered poor.

COLA complainers argue that the CPI-W doesn’t reflect price hikes that impact seniors disproportionately, mainly healthcare. Fair enough, but seniors are protected under the Social Security Act from increases in one of their most significant healthcare expenditures — the Medicare Part B premium (which covers doctors and other medical providers). That law prohibits an increase in the Part B premiums in years where the Social Security COLA is too small to cover it; the only exceptions are high-earning seniors with modified adjusted gross income over $85,000 (single), or $170,000 (married couples).

About three-quarters of seniors are covered by this hold-harmless provision, according to the Kaiser Family Foundation — although that number may drop a bit due to a change in the income-threshold rules in the Affordable Care Act. The threshold number had been adjusted annually for inflation, but will now be frozen through 2019.

This year’s COLA whining will help stoke the brewing political debate about Social Security’s future, including phony claims that Social Security selfishly robs future generations to pay today’s seniors and tomorrow’s boomer oldsters. Seniors and their advocates can help calm down the inter-generational tension by looking at their flat Social Security payments in the context of our broader economic hardships.

Photo: Alicia Munnell, director of the Center for Retirement Research at Boston College, in an undated handout.


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[…] While it’s disappointing news for seniors, it’s important to keep the COLA news in perspective. See my post this morning at Reuters, Social Security COLA complainers should settle down. […]

Posted by No Social Security COLA for 2011 | RetirementRevised | Report as abusive

I’m finding it hard to feel sorry for them. They are getting full benefit payouts. By the time my generation retires the government has told us to expect reduced benefits payments if anything at all. Maybe that is what Washington should be focused on.

Posted by Bdy2010 | Report as abusive

For some reason, there’s always been a vision of “the poor little old lady on social security” when I think of seniors as a whole. To find out that the poverty rate for seniors is less than 9%… less than the rest of the country as a whole, is a wake up call to me. Our aging generation really had it good when you think about it. Do you know anyone under the age of 40 who’s expecting a pension? How many companies offer stock options and profit sharing today? If you’re a poor retiree, I feel bad for you… we could’ve done more, but stop and think for a moment about what it’s going to be like for me and my peers when we retire… that’s if we live long enough. I have a feeling retirement age will be in the 70s when I get there.

Posted by the_sconnie | Report as abusive

Bdy2010 –

The fact that your generation has been told to expect reduced benefits doesn’t mean it has to happen, and it will only happen if you submissively accept what you are told. The amount of payroll taxes flowing into the Treasury every year is enormous, and there are many far better alternative solutions than lowering benefits.

The best solution would be simply to eliminate the cap on earned income subject to the payroll tax. This would permanently solve the SS benefits payout problem while also allowing payroll tax rates to be substantially decreased, this leaving more income in the pockets of consumers. The benefits for your generation would be, among other things: 1) full and stable SS benefits when your time comes, and 2) more job stability for you resulting from more active consumer spending.

My advice to you would be to stop whining about what Washington should be focused on and start paying more attention to what you should be focused on. We all know that Washington focuses on people needs only when Americans are aware enough and actively engaged enough to forcefully direct Washington’s attention.

Posted by Jack_StP | Report as abusive

ditto with Bdy2010 and the_sconnie. But I think we need to move one step further and start finding solutions for ourselves when we can no longer work. To do that we need to find sustainable solutions for those who need care now. For every issue we encounter there is a solution and that solution is just ripe for an entrepreneur willing to take the risk and will likely profit from it.

Posted by richmitch | Report as abusive

The article wrongly blames Obama. It is Congress who is denying the Seniors a raise. The ‘huge’ raise mentioned ends up to be a few dollars. Our checks are NOT in the millions so percentage wise the COLA end up to be a small number. But Congress themselves are getting a raise every year regardless of the economy!

Posted by dennisaa | Report as abusive

It is the measure of inflation that is wacko.
Health care costs and casualty insurance hat increased by double or triple digits over the past 2 years.
My homeowners insurance premium increased by 50% in 2009 and another 40% in 2010. It is slated to increase another 40% in 2011.
Likewise my health care premium has gone up by more than 10% each year.
Those 2 insurance premiums take almost half of my Social Security income.
Now BO and Congress want to raise my taxes on capital gains and dividends.

Posted by BBJJ | Report as abusive

‘Whining’ is the wrong word to use here. Seniors have earned their money and deserve every penny of it. Previous generations have kept this country free in so many ways and this seems to be forgotten. So if seniors are disappointed in not receiving their usual increase, they have every right to be. They created Social Security and pensions, plus so much more, because they knew what to do to plan for their futures. Present, and future generations, need to do the same for themselves, and have respect for the past generations that knew how to think ahead.

Posted by Newsage | Report as abusive

As a SS recipient currently on Medicare I had a Medicare Advantage Plan. Currently my doctor has stopped taking any NEW Medicare patients. His practice has limited current Medicare patients to being seen by physician’s assistants and nurses; no doctors; including, according to my doctor, even his own 83 year old mother. Additionally, my Medicare Advantage plan is no longer available. Now, if I need to get additional insurance over and above Medicare (which every Medicare patient NEEDS to do); my premium will be nearly $200 per month, PLUS the nearly $95.00 I pay for Medicare benefits, PLUS new drug coverage insurance, the premiums of which have also risen, AND the cost of the drugs has also risen, ALL within this year.

With no COLA from Social Security last year or this year, since inflation in the US is nonexistent, according to pertinent calculations, (gasoline costs may have dropped, but drug costs are through the roof and rising) how can seniors continue to get medical care and obtain their medications, plus eat, pay utilities, and dress themselves.

The amount Medicare users now will pay in insurance and Medicare costs now exceeds what most working individuals pay in insurance premiums for family coverage – while many, many Medicare recipients are too old to work and/or obtain jobs. How can seniors even pay for their insurance? Medicare pays very little, even if a doctor WILL see you.

Remember in the 70’s when the government was considering legalizing abortion? One of the considerations was; would abortion ultimately be extended to cover the third trimester, or even live births – and, we are ‘there’. Another of the considerations was; would opening the door to abortion ultimately culminate in legalized euthanasia for seniors. That seemed ‘so unlikely. Well, we are nearly there – and when the part of the new Health Care bill that mandates the federal government be the one making the personal decisions about the specific medical care individual Medicare Recipients receive, instead of doctors and/or insurance companies making the decision, we WILL BE THERE and it will be Government Regulated and Mandated Euthanasia for Seniors. If it is not YOU this is impacting, it is YOUR PARENTS.

Welcome to Change.

Posted by jayaaef | Report as abusive

You know…this can be solved. I say we should start forcing all religious organizations to pay tax like everyone else. After all, their God(s) want it that way. Matter of fact, I spoke to Jesus. He told me, “Render to Caesar what is his.”

Posted by MESTRAW | Report as abusive

No complaints about the zero COLA are justified, and no one is “denying” anyone an increase. The increase is automatically zero until inflation triggers an increase. The forumul is built into the program. I’ve not heard a single elderly person complain about this year’s lack of a COLA, though doubtless a few have in our large country. The fact that medical costs keep going up is distressing, but so has college tuition, which many young people are finding burdensome. We are all lucky to live in this fabulous modern, technological, age.

Posted by Marvinlee | Report as abusive

For those of you that have the nerve to call Seniors names, just remember, someday, if you live long enough, will be Seniors to. So manage your money well so you won’t have to depend on the government. As Reagan once said “you know your in trouble when someone says I’m from the Government and I’m here to help.”

Posted by Big_Bubba | Report as abusive

In 1987, Congress directed the Bureau Labor Statistics(BLS) to begin calculating a consumer price index for elderly. BLS developed an experimental CPI-E from 1982 to 2007 which showed CPI-E rose faster than CPI-U and CPI-W because medical care and shelter increased faster than inflation.
So, Congress has known, for OVER 20 years, that the current CPI formula DOES NOT WORK FOR THOSE OVER 62. Anyone who writes otherwise has not done their research and that includes Alicia Munnell.

Posted by GrannyD | Report as abusive

[…] also poses a big threat to retirees. Social Security hasn’t paid a cost-of-living adjustment for the past two years and its formula doesn’t recognize the higher rates of medical inflation […]

Posted by Glassman Wealth Services LLC » Blog Archive » Will Higher Interest Rates Save Retirement for Seniors? | Report as abusive

[…] healthcare costs | pension | Personal finance | retirement | Social Security If you want to tick off a senior, just mention Social Security’s cost-of-living adjustment (COLA). The COLA has been on […]

Posted by Why Social Security COLA cuts will whip up a fight | Reuters Wealth | Report as abusive