Social Security Probably Won’t Have a Cost of Living Increase

AUGUST 24, 2009  VOLUME 16, NUMBER 52

According to the Trustees of the Social Security and Medicaid trust funds, it looks like the annual cost-of-living adjustment (COLA) for Social Security next year will be, well, zero. In other words retirees, those on Social Security Disability and even Supplemental Security Income recipients will see no increase in their Social Security checks in 2010.

A summary of the Trustee’s report is available online, and it makes for interesting reading. The Trustees have provided explanations, figures, projections and calculations — and also some calculations of the real-world effect of those projections on individual beneficiaries and the funds as a whole.

If the no-COLA projections are correct, it would be the first year without an increase since COLAs were introduced in 1975 (you can see the history of COLAs since 1975 in a chart maintained by the Social Security Administration). The law mandating COLAs does not allow for reductions in Social Security benefits, so at least no one will see any automatic decreases.

Well, that’s not quite correct. Some recipient’s checks will go down, since their Medicare Part B premiums may increase — though only about one-quarter of Social Security recipients will be affected by that possibility. For the rest, Part B premiums are not permitted to increase by more than the COLA amount. With no COLA projected, that means no increase in Part B premiums. For those whose premiums are indexed for income, however, that may mean large increases in Part B premiums.

In addition, Medicare Part D (the drug benefit) premiums are expected to increase slightly for most Social Security beneficiaries. Since those premiums are automatically deducted from Social Security, the effect for most recipients will be a decrease in their monthly checks.

The culprit, of course, is mostly the recession and the general economic slowdown. Despite the lack of a COLA, most Social Security beneficiaries are actually paying more for their basic needs this year — partly because they pay more for health care, where costs have not held steady or decreased as they have for many consumer goods.

The projections are murkier for next year, of course, but the Trustees predict that there will likely be no COLA in 2011, either. Their planning assumes only a small COLA in 2012.

The final numbers will not be released for another two months, but anyone receiving Social Security benefits should assume that they will not be seeing any increase next year. That will be a significant change from last October, when Social Security announced a 5.8% COLA — the largest since 1982 (see the Social Security chart, which provides year-by-year figures for the COLAs).

What effect does the lack of a COLA have on the Social Security and Medicare trust funds? The Trustees predict that Social Security’s trust fund is adequately funded for the next ten years, but that beginning in 2014 (two years earlier than estimated last year) payouts will begin to exceed the fund’s value. The hospital insurance portion of Medicare’s fund looks even bleaker; it will begin being spent down in 2011 and run out in 2017.

©2017 Fleming & Curti, PLC