There may be no COLA increases til 2012.
Bad News For Those Born In 1947 - Forbes.com
"Social Security COLAs are calculated every October by comparing the third-quarter data of the
Consumer Price Index for Urban Workers (CPI-W) with the previous year's numbers. An increase in the CPI results in a COLA the following January for retirees and other Social Security beneficiaries. Rising energy prices caused a 5.8% COLA to be ordered in the fall of 2008. However, plummeting prices between the fall of 2008 and the beginning of COLA payments in January 2009 caused the CPI as a whole to drop by around 5%. In effect, the 2009 Social Security COLA compensated retirees for inflation that no longer existed.To make up for this overpayment, Social Security will pay no COLAs until prices rise back to their previous fall 2008 levels, which, according to the
Congressional Budget Office, won't be until 2012."
This point was brought up earlier.. that the COLA calculation is based on the national Consumer Price index (CPI) which may not rise to 2008 levels for several more years. Logic would dictate that if the Consumer Price index falls, then the SS payment should also fall. But we all know no one is going to propose cutting SS payments. So the COLA adjustment remains zero until the the CPI climbs back up to new highs.
The only reason the CPI will climb to new highs is inflation. I have heard both sides of the argument of why inflation may, or may not, rise (some predict rapidly). In theory, Social Security payments do not need a COLA adjustment,
providing the right "basket of goods" used to calculate inflation is properly adjusted to reflect items that SS recipients would typically buy. This is where the
Consumer Price Index Is Controversial
The basket of goods for SS recipients is likely to be quite different than a young family. College tuition, money spent on apparel and new car purchases are likely to be less a factor for seniors. Conversely, medical care costs are likely to be higher. Previous posts have highlighted several areas where items like heating oil, gasoline or electricity may be a larger part of a SS recipient's budget.
Calculating CPI is an inexact business to start with. Making matters even worse is tying the SS COLA to the same Consumer Price Index that may be accurate for middle class, middle age Americans. Clearly both the types of items purchased and the percentage of each item in a typical basket of goods is different for different age groups.
It seems logical to have the Bureau of Labor Statistics calculate a special CPI that reflects spending patterns of older, less affluent SS recipients simply because they are the ones most impacted by any even minor price changes. Using the CPI for the population at large clearly opens the door for conditions where people who rely heavily on SS could suffer a real drop in standard of living - simply because the wrong basket of goods (and thus the wrong CPI) was used to calculate their annual SS COLA adjustment.
Here is another important link to
Understanding the CPI