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Largest Social Security COLA Increase in Over 25 Years May Greet Senior Citizens in 2009
Social Security News
September 15, 2008
Current trends indicate it will be over 6% and largest cost-of-living adjustment since 1982; announcement due next month.
Senior citizens may be headed for their largest pay increase – or cost of living adjustment – in more than 25 years, following this year’s Social Security COLA of only 2.3 percent. Projections are now being made that the increase for 2009 will almost
certainly exceed six percent.
This is not necessarily good news, since it reflects the rate of inflation for goods and services seniors have to buy, but is much better than no cost of living adjustment as in most private plans.
The COLA in 2008 was just 2.3 percent, the smallest since 1904. The Social Security Administration estimated it added $24 to the average retired senior citizen’s wallet each month. The projected increase for 2009 of over 6 percent indicates the average senior may get an extra $75 per month in 2009.
One of those who keeps a watch on the COLA is Mike Causey, who reports on Federal News Radio.
“Federal-military and Social Security retirees will get a cost of living adjustment in their January, 2009 checks. With one month (this month, September) left in the inflation-tracking countdown, the 2009 COLA pay is now on track to be 6.2 percent,” he says in his Sept. 10 report on Federal News Radio.
His projection, however, only reflects actual economic results for one of the three months that will determine the COLA for seniors. At the end of July the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) – the CPI index used to determine COLA for Social Security - was 6.2 percent higher than July of last year.
The CPI measures the average change in the prices paid for a market basket of goods and services. These items are purchased for consumption by the two groups covered by the index: All Urban Consumers (CPI-U) and Urban Wage Earners and Clerical Workers, (CPI-W).
The continued high price of gasoline almost assures the inflation index will stay high for August and September. The August numbers are expected to be released tomorrow by the Bureau of Labor Statistics.
And, even at the White House the numbers are changing to project a higher COLA that expected just a few months ago.
In late July, the White House issued the President’s Mid-Year Budget Review and added $47 billion to expected outlays for Social Security over the next five years.
The reports says one of the reasons for the increased projection is “higher projections for Cost of Living Adjustments (COLA).” Although, the report did not specifically say what the COLA increase was expected to be. They did, however, increase the projection made just in February for 2009 by $6.8 billion.
The official COLA announcement by the Social Security Administration is normally made shortly after the middle of October, when the CPI-W numbers for September are final.
The bump seniors get each year is based on the increase in the Bureau of Labor Statistics' CPI-W, from the third quarter of the prior year to the corresponding period of the current year.
This year's increase in the CPI-W was looking small earlier this year but the recent inflation numbers are expected to make the third quarter gain substantial.
The problem is the increase is only aimed at keeping Social Security recipients at the same relative income level. So, no matter how high the pay raise seniors get, it may well be eaten up by inflation.
Seniors have actually been losing ground in recent years because of the gigantic increases in healthcare costs, which has been much higher than the average increase for the CPI-W. This year, however, recent reports indicate a substantial slowing in the rate of increase for healthcare costs.
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