NYT reports No Social Security Increase Next Year:
One feeling reported was this:
“I just hope there is some way to reconsider that decision (on the COLA) because it is going to affect so many people,” Edelman said. “I can’t understand why the Congress hasn’t seen that there’s been an increase in everything.”
More than 58 million retirees and disabled Americans will get no increase in Social Security benefits next year, the second year in a row without a raise.
The Social Security Administration said Friday inflation has been too low since the last increase in 2009 to warrant an increase for 2011. The announcement marks only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.
The cost-of-living adjustments, or COLAs, are automatically set each year by an inflation measure that was adopted by Congress back in the 1970s.
A little more than 58.7 million retirees and disabled Americans receive Social Security or Supplemental Security Income. Social Security was the primary source of income for 64 percent of retirees who got benefits in 2008.
The average Social Security benefit: $1,072 a month.
The last increase in benefits came in 2009, when payments went up by 5.8 percent, the largest increase in 27 years. The big increase was caused by a sharp but short-lived spike in energy prices in 2008.
Gasoline prices topped $4 a gallon in the summer of 2008, jolting the inflation rate and resulting in the high COLA for 2009. When the price of gasoline subsequently fell below $2 a gallon, so did the overall inflation rate. Seniors, however, kept the high COLA for 2009.
The reality of how it is determined from Econospeak and PGL:
There has been no recent decision by lawmakers to freeze nominal Social Security benefits. As our graph shows, the consumer price index for August 2010 is actually lower than it was in July 2008. So if CPI properly measures the cost of living – then seniors have received a slight increase in real income. Some prices may have increased while others have decreased. And perhaps food and utility for some seniors carry a higher weight in their own budgets than the typical consumer.
According to the Bureau of Labor Statistics, energy prices have dropped dramatically over this period. It is true that the food price index has increased slightly. Over the same period, the housing price index has declined slightly. The medical price index, however, has increased by 6.8 percent. OK, seniors who budgets are heavily weighted towards the cost of medicine may have to make cutbacks.
Thanks to Econospeak reader JWMason who asks us to check the CPI-E, which is discussed here:
The Bureau of Labor Statistics (BLS) also calculates an experimental price index for Americans 62 years of age or older (often called the CPI-E). This article reviews price changes seen in the experimental CPI-E from December 1997 through December 2009 and reiterates the methods, sources of data, and limitations of the experimental index described in earlier articles. Over the 12-year period from December 1997 through December 2009, the experimental CPI-E rose 36.1 percent. This compares to increases of 33.9 and 33.8 percent for the CPI-U and CPI-W, respectively … The relative importance data for the CPI-E and the CPI-U and CPI-W populations show that older Americans devote a substantially larger share of their total budgets to medical care (see Table 1). In addition, for each population group, medical care prices rose more rapidly than the overall (all items) index during each of the eight years studied. For this reason, the medical care component accounts for a significant portion of the difference between the higher rate of increase measured for the CPI-E relative to the two official population groups during the 1998-2009 period … The CPI-E, reweighted to incorporate the spending patterns of older consumers, behaved more like the CPI-U than the CPI-W. This was expected, because the CPI-U includes the expenditures of all urban consumers, including those 62 years of age and over. The CPI-W, however, is limited to the spending patterns of wage-earner and clerical families and, therefore, specifically excludes the experience of families whose primary source of income is from retirement pensions. Finally, the medical care component of the CPI has a substantially larger relative weight in the experimental population compared to the CPI-U or CPI-W. As a result, the medical care component tends to have a larger effect on the elderly population than it does on the other two indexes. Other differences also play an important role, however, such as the greater weight of homeownership in the CPI-E.
Our own Bruce Webb also leaves a comment at Econospeak:
The closing of the Medicare Part D donut hole via the ACA should have the effect of closing much of the gap between CPI-U and CPI-E. Or at least someone should run the numbers before we chase our tails arguing about indexes. Even if I believed CPI-E could possibly capture the true COL of seniors. My state and even my city offer a wide range of direct and discounted services to people over 55, something certainly not uniformly done across the country. But just about every place has something, even if it is as simple as the Early Bird Special at the local cafe. Trying to quantify for that and things like the variable opportunity costs for bargain shopping between current workers and retirees being pretty difficult, or so I would think.
Which leads us back to where? Who, like reader CreativeGeneration on a different thread regarding proprietary trading and his lack of knowing, will grit their teeth to learn the outline of what is being discussed and try to find out? And does it matter to someone age 83 living on $1,029/month, or Greg Mankiw’s feelings on his extra $1000 and a marginal tax?