Social Security has built into its law and budgets a ‘Cost of Living Adjustment‘ (COLA) tied to inflation and/or rising prices. Those prices have, if anything, fallen during The Great Recession, so recipients have not seen a COLA since 2009. But the Social Security Administration published its formula this week to account for a 3.6% increase for most people who receive their checks, beginning in January 2012.
The adjustment can not come soon enough for many seniors. As, though inflation did not move over the last two or three years, incomes that depended upon to supplement their Social Security benefits collapsed over those same years. What does the equation come out to for seniors?
According to the AP story, “monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5% increase would amount to an additional $38 a month, or about $455 a year.” Many Americans consider their monthly checks to be well over 80% of their incomes, so any COLA is seen as a real benefit.
The rise might be especially timely as incomes from IRAs and projected home sales have collapsed over that same time period. True, the COLA does not go in reverse, so falling prices do not mean smaller payments to retirees. But for anyone who had some long-term investments to help support themselves on Social Security, the steady monthly checks might have been no comfort to the striking loss of invested wealth.
Moreover, the adjustments to Medicare Plan B payments might also erode the gross COLA by the time it gets into your bank account.,
Many seniors will see a substantial part of the COLA consumed by a higher premium for Medicare Part B (doctor visits and outpatient services), which usually is deducted from Social Security payments. For those who receive the average benefit of $1,177 per month, a 3.5 percent COLA would lift their gross 2012 payment to $1,218. Assuming that the official Part B premium is, as projected, $106.60, seniors could pay $10.20 more monthly for Part B, reducing their net benefit to $1,207 – an increase of 2.63 percent.
Nevertheless, the COLA will come as a much needed boost for the 99% of retirees who were told what a great retirement program securitized privatized plans were going to be. And likely they will be – for the 1% who sold them.