Seniors and the cost of living: Why Social Security isn’t keeping up
October 22nd, 2008
The Social Security Administration recently announced that the annual cost-of-living (COLA) adjustment for 2009 will be 5.8 percent–the largest since 1982. That might seem odd in a tanking economy that should be taking the pressure off price increases. But by law, the annual Social Security COLA is determined by averaging inflation rates in the third quarter; the formal measure is the U.S. Bureau of Labor Statistics’ Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
From today’s vantage point, that looks like the good old days. The economy was in comparatively good shape from July through September and inflation was rising rapidly–mainly the result of rising energy and food prices.
The nascent inflation threat is receding now. Inflation was flat in September, and energy prices have been plunging as the economy slams into what looks like a brutal recession in 2009. The Economic Cycle Research Institute, which studies business cycles, now says inflationary pressure in the economy is at a six-year low point.
Did retirees catch a lucky break, getting a big COLA just as inflation was about to nosedive? Perhaps–but only if you ignore the bigger picture of the inflationary pressures facing older Americans. Rising health care expenses–and taxes on benefits–mean that Social Security COLAs aren’t keeping pace with the inflation facing retirees.
Learn more about it in my Retire Smart column this week.
