Social Security checks will see their first increase in three years this January. The Social Security COLA, or Cost of Living Adjustment, will amount to 3.6%.
But seniors should be outraged by the Social Security increase — because it isn’t an increase at all. The fact is the government program is paying less than it has in years past, and the recent COLA “increase” doesn’t make up for the ground that seniors have already lost.
Thanks to inflation pushing up prices and a stagnant economy hindering income, many senior citizens rely on their monthly Social Security check more than ever before. And on its face, an increase going into 2012 seems like a good thing. But here’s why the recent Social Security COLA is woefully deficient — and just a political move to appease older voters who have every right to be furious:
Enough for a Tank of Gas
According to officials, the average monthly check for the elderly will increase $43 to $1,229. For the disabled, it will rise $39 to $1,111. That’s about 12 gallons of gas per month — not exactly a windfall. Besides, it still equates to less than $15,000 per year for the average payout. Yes, some seniors make more — but some make even less. For those who think Social Security is charity, try balancing your budget on just $300 a week.
Not Keeping Pace with Inflation
Consider first that this COLA boost is supposed to adjust for three years of higher costs. We all know the brutal reality of soaring food prices from our trips to the grocery store. The U.S. Labor Department reported recently that consumer prices were up 0.4% in August. That’s a 3.8% rate for the full year and the hottest pace of inflation since November 2008! Even if you presume that inflation was nil in 2009 and 2010, this year’s rate is enough to invalidate any “gains” in Social Security payouts.
Coupled With Rising Medicare Costs
Worse, many seniors won’t even see the benefits of the Social Security increase. That’s because it’s tied to an expected hike in Medicare Part B premiums. For the past two years as Social Security benefits stayed flat, a “hold harmless” provision protected more than 70% of beneficiaries from suffering the rising cost of Medicare payments. Now that the COLA increase is in the works, those higher premiums can take effect — and erase much of the extra cash, particularly from new enrollees and those who get larger benefit checks.
Little Hope for Another Increase
Such “generous” COLA increases are sure to be few and far between going forward. Lawmakers are embroiled in a debt debate that almost certainly will claim Social Security payments — from something as benign as changing the formula to calculate increases to enacting a drastic change like a wholesale reduction in benefits. The 3.6% boost in 2012 is almost nothing, but that’s all seniors are going to get for quite a while.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.