Vanishing Social Security inflation adjustment will squeeze some seniors
Posted on 22 July 2009
Permanent URL of this article: http://retirementrevised.com/money/vanishing-social-security-inflation-adjustment-will-squeeze-some-seniors
The Great Recession is about to squeeze retirees where it hurts: the monthly Social Security check.
By law, Social Security passes along an annual cost of living adjustment-or COLA-to recipients. The increase is tied to a broad measure of inflation in the economy, and a year hasn’t gone by since Social Security was created in the 1930s without a COLA.
But consumer prices have been flat or falling this year due to the sinking economy. And while the 2010 COLA won’t be announced formally until this fall, government forecasts make clear that Social Security recipients shouldn’t expect an increase next year-and probably not for at least two years beyond that.
Amazingly enough, some retirees will even see a decrease in their monthly checks for Medicare premium deductions-although that won’t be the case for most recipients.
The situation might look like a wash at first glance; if consumer prices are down, seniors don’t need a raise, right? But retirees are impacted disproportionately by a sub-set of prices that tend to rise more quickly than inflation in the broader economy-health care, energy and transportation. They’re also grappling with the bad timing of falling home values and investment losses at a time when many need to tap those assets.
The result is that the vanishing COLA will squeeze many retirees hard. Social Security provides, on average, about 39 percent of income for retired households, according to AARP. More than 50 million people receive benefits.
A general decline in the financial picture of seniors is well underway; a recent survey by the Pew Research Center showed that more than a third of seniors have cut their household spending in the past year; nearly 40 percent said the recession has caused stress in their families; a majority (56 percent) said the recession “probably will make it harder for them to take care of their financial needs in retirement.”
But one of the most painful-and implications of the vanishing COLA comes from the way that Social Security is linked with retiree health care costs. This is related to Medicare premiums and other general out-of-pocket expenses.
Most Social Security recipients choose to have their Medicare Part B premiums deducted from their checks. Part B covers physician and nursing services, tests, vaccinations, and a variety of therapies, and the COLA normally is more than enough to cover any annual increases.
The Part B premium has been rising sharply in recent years. It’s currently set for 2009 at $96.40 per month, and will jump to $104.20 in 2010 and $120.20 in 2011.
What will that mean for retirees in 2010, absent a Social Security COLA? The good news is that about 75 percent of Medicare recipients are protected from a net decrease in benefits under the law, according to research by The Henry J. Kaiser Family Foundation. But you’re not protected from the increase if you fall into one of these categories:
–High income people, with modified adjusted gross over $85,000 for individuals or $170,000 for couples.
–New enrollees, whose Social Security payments aren’t rising or falling since they weren’t receiving benefits in the previous year or weren’t covered under Part B.
–Low-income individuals eligible for Medicaid and Medicare; in these situations, Medicaid pays the Part B premium.
Meanwhile, anyone participating in a Part D prescription drug program-which is voluntary-won’t be protected from premium increases. The only exceptions are certain low-income individuals participating in special Part D subsidy programs.
Medicare aside, retirees have been grappling with higher out-of-pocket health costs for some time. Fidelity Investments research shows that out-of-pocket retiree health costs have jumped 50 percent since 2002, mainly reflecting higher Medicare premiums, over-the-counter medications, dental care and long-term care expenses.
To learn more, download a briefing on Social Security and Medicare at the Kaiser Foundation’s website.
August 1st, 2009 at 7:20 am
i dont know where they get their figures from. heating has gone up 75%. Rent goes up every year 50.00 a month. food is ridiculous. gas for car is high. electric bills have almost doubled this year. nothing has gone down for seniors but our check. in our days we did not make enough money to save for retirement. sometimes we have a week we have no money for food. we need a raise every year to cover increases.
August 3rd, 2009 at 1:06 pm
For some reason, the rising cost of food and energy are not figured into the cost of living criteria for a COLA!!! Neither is the certainty of a rise in property taxes and a yearly rise in rent. Just what figures are included??? This is outrageous.
August 3rd, 2009 at 1:34 pm
Rosemary,
By law, the annual Social Security COLA is determined by averaging inflation rates in the third quarter of every year; the formal measure is the U.S. Bureau of Labor Statistics’ Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is a broad measure of inflation, based on a survey of consumer prices paid by a big chunk of the U.S. population. Retirees are impacted disproportionately by a sub-set of prices that tend to rise more quickly than inflation in the broader economy–health care, energy and transportation. A comparison of prices in these areas and Social Security COLAs shows that retiree buying power has eroded sharply.
You can learn more about how the COLA is determined here:
http://retirementrevised.com/column/retiree-buying-power-falls-despite-big-social-security-cola
August 28th, 2009 at 11:03 am
i have worked my butt off driving a truck for the last 40 yrs at least a minimum of 55to65hrs a week just to get by. and in my days of working was never offered a nice cushy retirement pkg, so i depend on one check only my social security. the cost of everything is to much for me to handle,i am co-pay,co insurance and all other deducts,POOR…leaving me BROKE at the end of every month. im a very proud person, but its come a time where ive gone to get some relief from my local city agencies for bags of food, help with my elec, heat, phone, pharmacy script plans like walmart and now ive been going to my local VA for its help.i look forward to only one thing and thats our cola raise to help offset some of my medical increases.we are left at the mercy of the govt.this year are local politicians are deaf because its not an election year. yes and i do VOTE… our hands are tied. this is sad! anthony, prov, RI
September 12th, 2009 at 8:14 pm
Isn’t it funny how the government, can hand out 1 trillion
dollars to GM and a host of banks that couldn’t handle there
financial situations. Then turn around and take a measly
Cost of Living Adjustment for retirees Social Security
benefits, and vote it down, not just for one year but for
two. I thought the democrats were suppose to be the party for
the poor and needy. Giving away a trillion dollars to the
rich banks and car companys is a joke. President Obama, this
is on your watch, So therefore you have to take the blame for
this absurdity.+
September 12th, 2009 at 10:19 pm
Joseph: as I wrote above, the COLA decision isn’t an annual up-or-down vote; it’s determined by a formula as defined by law.
September 19th, 2009 at 3:04 pm
Mark,
I’d like to know where you got the specific figures for the Part B premiums for 2010 & 2011 you quoted back in July. What source are you using for that information?
I work in the senior market, and to my knowledge the new premiums have not been released yet(they are not posted to Medicare.gov as of today) and I found nothing searching the internet. The only thing I found official that might even hint at a rate was the CBO director’s blog post from April ‘09. If I told a client what a premium was going to be, or even guessed, before it was known I could be in a lot of trouble! I could be fined, or worse, lose my license.
I’d like to know what your source was for this info.
Thanks.
September 19th, 2009 at 4:02 pm
Laurie, I should have clarified that the 2010 and 2011 figures are projections that aren’t yet official. My source is analysis from the Kaiser Family Foundation. See: http://www.kff.org/medicare/7912.cfm
Also see:
http://www.usnews.com/money/blogs/the-best-life/2009/5/19/low-cpi-creates-medicare-winners-and-losers.html
September 26th, 2009 at 9:38 pm
Where is our president Obama in this situation ? We seniors need his help desperately in receiving our Cola monies that we need so badly.Why the cuts on our monies and how come billions of money is being sent away to foreign countries instead of him helping us here in our country.Especially the needy here,which are many,and us seniors.Why is he allowing our rent for us seniors to be raised every year etc.? We really,really need his help with this right away before this year ends.Please,please help us,President Obama!!
October 1st, 2009 at 5:51 pm
I am a 95-year old senior and I am furious that there will be no cost of living adjustment (COLA) in 2110 and 2111 for seniors and the disabled on social security.
Some 58 million would be affected, 58% of whom are women, most of whom have incomes near or below the poverty level, most of whom receive less social security pension than their male counterparts.
Contrast this proposal with the big bucks the financial moguls collected for bringing about a depression that put 9-14 million Americans out of work.
Are you as angry as we are? If so, get in touch with your representatives in Congress right away and tell them HANDS OFF OUR COLA.
Most Republicans and many Democrats haven’t hesitated to enrich the richest via tax cuts but have not hesitated to tax the poorest. For example, every one’s income tax is geared to the cost of living but the tax on social security benefits is not. Thus each year the cost of living ajustment thrusts large numbers of seniors into the tsxable base, taking away on one hand what was given with the other
That’s not the only discriminatory act. This COLA, set in 1955, is based only on food costs. It does’nt take account.of increases in housing, health and transportation.
Are you getting angrier?
This is a fairness issue. This is a poverty issue. This is a woman’s issue. HANDS OFF THE COLA . Spread the word.
SELMA ARNOLD
October 5th, 2009 at 4:27 pm
why don’t congress pass a law to give a 2 percent raise in the years cola does not raise, after all when they retire they made sure they have no worries like most peole in U.S. has to. I guess since i am not a congressman or pres. i do not count, they gave money to everyone this year except for the people that will not get a cola raise , thank you to all the peolpe that do not need it maybe you can vote yourself a nice raise with the money you save on this.
January 8th, 2010 at 8:13 pm
What about people like me that may have a fixed income of 1200 monthly 96.00 medicare premium, plus if I get sick and go to the hospital, which I do. I have to pay a 613.00 co-payment each and every month , not just once a year. Per month, or just stay home and take my chances and not be well. Is this the governments way of cutting down on population. I do eat and have utilities plus all of the other bills everyone else have. This does not include credit cards, I have none.
February 23rd, 2010 at 11:57 am
I am a 74 year old senior who retired on Dec 31, 2008. SSA says that I have to pay $287.30 a month for medicare even thought my 2009 & 2010 earnings are below $170,000. My earnings for 2008 were above $320k.
Does anyone know if this can be appealed?