Social Security Will Not Have COLA Increase in 2011;
No Surprise but Official This Friday
Senior citizens doing better than most since
recession; See below - history of COLAs, Social Security Q&A, related
links
Oct. 11, 2010 –
Senior citizens have known since last year that they are not likely to
receive a cost-of-living adjustment in their Social Security checks for
2011, due to the lack of inflation, which determines the COLA each October. The Associated Press notes this official word will be
released by Social Security on Friday.
Social Security
benefits usually increase each year based on the annual cost-of-living
adjustment (COLA). This increase, however, is based on the Consumer
Price Index (CPI-W) growth from October 1 of one year through September
of the next.
No growth
through September of 2009 resulted in no COLA for 2010. The same thing
seems certain this year and maybe next, according to experts.
“It would mark
only the second year without an increase since automatic adjustments for
inflation were adopted in 1975. The first year was this year,” reports
the AP.
"If you're the
ruling party, this is not the sort of thing you want to have happening
two weeks before an election," said Andrew Biggs, a former deputy
commissioner at the Social Security Administration and now a resident
scholar at the American Enterprise Institute.
"It's not the
congressional Democrats' fault, but that's the way politics works,"
Biggs said. "A lot of people will feel hostile about it."
The projection
will be made official on Friday, when the Bureau of Labor Statistics
releases inflation estimates for September. (Click
to the AP story)
Senior
citizens doing better than most
Senior citizens,
however, are still fairing better than most since the Great Recession
began in 1997, according to a recent report by the Pew Research Center.
About
seven-in-ten retirees and other older adults largely held their own
during the recession, while an equally lopsided majority of
20-somethings did not, according to the recent survey by Pew. The analysis – “One
Recession, Two Americas” - written by Rich Morin, Senior
Editor was published September 24.
“As seen in
earlier reports,” writes Morin, “older adults have been more sheltered
from the worst of the recession than younger people. According to the
analysis, about seven-in-ten people 65 and older Held their Own during
the recession, compared with 31% of those 18 to 29 and about four-in-ten
adults ages 30 to 49 (40%) and 50 to 64 (44%).”
“More than
six-in-ten retirees (64%) have faced relatively few economic hardships
during the recession and fall into the group that Held their Own while
36% Lost Ground,” according to the report.
National
Academy of Social Insurance Analysis
Social Security
beneficiaries include 33.7 million retired workers, 4.4 million widows
and widowers, and 2.5 million spouses. About 7.8 million disabled
workers receive benefits, along with 0.9 million severely disabled adult
children of deceased, retired, or disabled workers. Another 3.2 million
children under age 18 receive benefits because their parent died, became
disabled, or retired (SSA 2010a), according to a report by the National
Academy of Social Insurance.
How much does
Social Security pay?
The average
monthly benefit paid to retired workers was $1,166 (about $14,000
annually) in January 2010 (SSA 2010a). The average benefit was somewhat
smaller for disabled workers ($1,064) and for widows and widowers age 60
or older ($1,125).
Benefits are
somewhat higher for families. Widowed mothers with two children received
$2,404, on average, or about $28,850 a year, while disabled workers with
a young spouse and one or more children received $1,797 a month, on
average, or about $21,560 a year (SSA 2010b). For comparison, the 2010
federal poverty guideline for a family of three is $18,310 a year; for a
family of four it is $22,050 (U.S. Department of Health and Human
Services 2009).
Social Security
is the main source of income for most beneficiaries 65 years of age or
older. The benefits account for half or more of total income for one out
of two beneficiary married couples and 72 percent of nonmarried
beneficiaries (SSA 2010c). For all but the highest-income 20 percent of
older Americans, Social Security is the largest single source of income.
Security:
Adequate Benefits, Adequate Financing.
Table 1.
Average Monthly Benefits, January 2010
Type of
Beneficiary Benefit
● Retired
workers $1,166
● Aged widows
and widowers alone $1,125
● Disabled
worker alone $1,064
● Widowed
mother and two children $2,404
● Disabled
worker, young spouse and one or more children $1,797
Automatic benefit
increases, also known as cost-of-living adjustments or COLAs, have been
in effect since 1975.
The 1975-82 COLAs
were effective with Social Security benefits payable for June (received
by beneficiaries in July) in each of those years; thereafter COLAs have
been effective with benefits payable for December (received by
beneficiaries in January). COLAs received in 1975-2010 are shown below.
The COLA for
December 1999 (reflected in Jan. 2000) was originally determined as 2.4
percent based on CPIs published by the Bureau of Labor Statistics.
Pursuant to Public Law 106-554, however, this COLA is effectively now
2.5 percent.
The first
automatic COLA, for June 1975, was based on the increase in the Consumer
Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the
second quarter of 1974 to the first quarter of 1975.
The 1976-82 COLAs
were based on increases in the CPI-W from the first quarter of the prior
year to the corresponding quarter of the current year in which the COLA
became effective.
After 1982, COLAs
have been based on increases in the CPI-W from the third quarter of the
prior year to the corresponding quarter of the current year in which the
COLA became effective.
Frequently Asked Questions About the 2010
Cost-of-Living Adjustment
The Q&A below was released by Social Security Administration
last year to explain the consequences of now increase for 2010. It
should be applicable to 2011, as well.
Q. What is a cost-of-living adjustment (COLA)?
A. A COLA is an automatic adjustment in benefits
that occurs annually. The purpose of the COLA is to ensure that the
purchasing power of Social Security and Supplemental Security Income
(SSI) benefits is not eroded by inflation. It is based on the
percentage increase in the Consumer Price Index for Urban Wage Earners
and Clerical Workers (CPI-W) from the third quarter of one year to the
third quarter of the next. If there is no increase, there is no COLA.
Q. Who determines the CPI-W?
A. The CPI-W is determined by the Bureau of Labor
Statistics in the Department of Labor. It is the federal government’s
official measure used to calculate COLAs.
Q. Why is there no COLA for 2010?
A. By law, Social Security and Supplemental
Security Income benefits increase automatically each year if there is an
increase in the Bureau of Labor Statistics’ Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter
of the last year to the corresponding period of the current year. This
year there was no increase in the CPI-W from the third quarter of 2008
to the third quarter of 2009.
Q. If there is no COLA, will my benefits stay
the same?
A. If there is no COLA, your Social Security and
SSI benefits will remain the same.
Q. Will the maximum taxable earnings amount
change in 2010?
A. No. Because there is no COLA, the Social
Security Act prohibits an increase in the contribution and benefit base
(Social Security’s maximum taxable earnings), which normally increases
with increases in the national average wage index. The maximum amount
of earnings subject to the Social Security tax (taxable maximum) will
remain $106,800.
Q. Will the retirement earnings test exempt
amounts change in 2010?
A. No. Because there is no COLA, the Social
Security Act prohibits an increase in the retirement earnings test
exempt amounts. The earnings limit for workers who are younger than
“full” retirement age (age 66 for people born in 1943 through 1954) will
remain $14,160. (We deduct $1 from benefits for each $2 earned over
$14,160.) The earnings limit for people turning 66 in 2010 still will
be $37,680. (We deduct $1 from benefits for each $3 earned over $37,680
until the month the worker turns age 66.) There is no limit on earnings
for workers who are “full” retirement age or older for the entire year.
Q. If Medicare premiums increase in 2010, will
my Social Security benefit be reduced?
A. The law contains a “hold harmless” provision
that protects about 93 percent of Social Security beneficiaries from
paying a higher Part B premium, in order to avoid reducing their net
Social Security benefit. Those not protected include higher income
beneficiaries subject to an income-adjusted Part B premium and
beneficiaries newly entitled to Part B in 2010.
If a beneficiary subject to IRMAA in the current
year will not be subject to IRMAA in the next year, the “hold harmless”
provision can apply.
There is no “hold harmless” provision for Medicare
Parts C and D, meaning that beneficiaries must pay any higher premiums.
Q. How long has Social Security had COLAs?
A. Congress enacted the COLA provision as part of
the 1972 Social Security Amendments, and automatic annual COLAs began in
1975. Before that, benefits were increased only when Congress enacted
special legislation.
Trust Funds exhausted in 2037, same as projected last year;
enter red ink in 2015
Q. Who determines the CPI-W?