Since 1975, Social Security payments have been adjusted each year based on a complicated formula tied to inflation – COLA. Sounds fair, right? Well, not so much when shady math is involved.
This year, the 56 million people receiving Social Security benefits and 8 million receiving Supplemental Security Income will see a mere 1.7% increase, which will only be the fifth time since COLAs inception that the increase has been less than 2%. On average, this 1.7% will mean about $21 extra dollars for recipients per month.
According to the Social Security Dept., inflation has been low over the last year. However, I don’t see how this shady math is congruent with reality. Anyone that’s been out of their home in the last 12 months can certainly attest that gas prices, electric prices, food, entertainment, clothing, rent, and so forth have certainly increased this year.
My electric bill, for example, was $30 higher last month than September 2011 and was $42 higher this month than October 2011. According to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which is the measure of price change largely used to measure COLA, home energy costs dropped 3.8% this year. My electric bill certainly doesn’t reflect such math. Gas prices have risen by 6.8% according to the CPI-W. However, since the Social Security Administration only compares the price index for July, August, and September with the same months from the previous year, much of that 6.8%, which occurred earlier in the year and in October isn’t reflected in the “math.” Likewise, the 4.4% rise in medical costs and 1.4% increase in housing costs that largely occurred at the beginning of the year also aren’t reflected in the “math.”
Such shady math resulted in 2010 and 2009 having a zero COLA increase.
It’s important to remember that many must live exclusively off this Social Security benefit. Food, utilities, healthcare, gas, and other vital living expenses continue to rise every day and it’s often this yearly COLA adjustment that means the difference between recipients choosing between heat and food or medications and rent.
Meanwhile, Medicare premiums that are deducted from SS payments are projected to go up, specifically Medicare Part B, which is expected to rise at least $7.oo a month.
While seniors and the disabled will be getting a much lower COLA increase, workers might be paying out much higher Social Security taxes in 2013. Almost 10 million workers and their employers will see a threshold increase and resulting higher taxes. One of the few things that Congress and President Obama did to help the middle class was to temporarily cut the share of Social Security taxes paid by workers from 6.2% to 4.2%. However, this cut will expire at the end of this year.
Combine the above with the fact that the median household income dropped almost 7% and that unemployment is still at a record high and it may be a recipe for disaster for older and disabled Americans. Their Social Security payments may not be enough to meet their basic needs and their family may be even more financially strapped from increased taxes, lower wages, and possible under/un-employment and unable to help them financially.
Published in: Personal Finance