COLA wars: Social Security beneficiaries won't get a raise next year

The Social Security Administration announced Thursday that there will not be a cost-of-living adjustment (COLA) next year -- marking the first year since 1975 that Social Security recipients have not had an annual increase.

For 34 years, retirees have probably viewed the yearly COLA as their birthright. But the uptick isn't an in-step raise -- it's a benefit increase tied to the consumer price index for urban wage earners and clerical workers (CPI-W). In fact, until 1986, the CPI-W had to go up by at least 3 percent before social security beneficiaries would qualify for a COLA. Today, there only needs to be an increase of 0.1 percent before the Social Security Administration approves a COLA.
This year, the CPI fell by a shocking 1.3 percent -- the first such drop since 1955 -- which reflects a 29.7 percent drop in the price of gasoline and a 21.6 percent drop in overall energy costs. Food prices have dropped 15 percent off their high from mid-2008.

Fortunately for retirees, the yearly social security adjustment can only go up. For some recipients of federal benefits, including overseas members of the military, cost-of-living decreases can translate to drops in benefits. But even if CPI-W goes down, social security benefits cannot be reduced. In that sense, COLA might be a misnomer: A cost-of-living adjustment always increases benefits, so Cost-of-Living Increase might be a better term. (And if recipients of COLI got their notification by e-mail, then we'd have to call it E-COLI.)

At any rate, today's unwelcome news will disappoint Social Security beneficiaries, especially after the 5.8 percent benefit increase they saw this year -- the largest annual leap since 1982. This jump, tied to rising fuel prices last year, went a long way in 2009, as falling energy prices and a falling CPI-W translated into a boon to people on fixed incomes. And even as U.S. workers have face falling incomes and rising unemployment, 55 million retirees received $250 checks in May, and President Obama is lobbying for a second wave of $250 stimulus checks early next year.

Politically, these checks make a lot of sense. The President is not responsible for cost-of-living increases in social security, but he gets a fair measure of the blame when they don't go through. With midterm elections coming in 2010, Obama can hardly be blamed for greasing the wheels with America's biggest voting bloc.
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