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Related Resources

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ARTICLE_DATE April, 20 2010 00:01:00
ARTICLE_DATE_STR 20100420
ARTICLE_DESCRIPTION <p>Social Security's uneasy relationship with inflation.</p>
ARTICLE_ID 864
ARTICLE_STATUS published
ARTICLE_TEXT <p>Until January of this year, Social Security checks had gone up routinely every year since 1975, when the first automatic <a href="http://www.factcheck.org/2009/09/social-security-cola/">cost-of-living adjustment (COLA)</a> took effect.&nbsp; The 2010 COLA didn't happen and without intervention it's unlikely that there will be a 2011 COLA either.<br /><br />These COLAs are based on the <a href="http://bulletin.aarp.org/yourmoney/socialsecurity/articles/is_social_security_s_inflation_gauge_flawed_.html?print=1">Consumer Price Index</a> (CPI) version which represents the consumer spending of urban wage earners in clerical or other positions.&nbsp; Since the CPI has been esentially flat due to the economic downturn, it hasn't triggered the COLA.&nbsp; Questions are being raised, however, as to the suitability of this benchmark.&nbsp; This CPI version seems not to reflect the consumption patterns of older people, particularly when it comes to medical and health expenditure.<br /><br />When <a href="http://www.fool.com/retirement/general/2010/04/06/the-problem-with-saving-10-of-your-paycheck.aspx">92% of retirees</a> in one survey report that Social Security is the major source of their income, this issue looms large.&nbsp; As of March, <a href="http://bulletin.aarp.org/yourmoney/socialsecurity/articles/is_it_time_to_talk_about_social_security_.2.html?print=1">43.5 million retirees</a> (and 10.2 million people with disabilities) collect monthly benefits.&nbsp; Millions of these retirees have claimed their benefits early to replace income lost to layoffs or to supplement income due to underemployment.<br /><br />Because&nbsp;lawmakers are afraid of voter backlash, no major Social Security reform legislation seems likely this election year.&nbsp; However, since Social Security is the only post-retirement revenue source that retirees cannot outlive, as 2011 draws nearer as a second straight non-COLA year legislators will find it difficult to keep this issue on the back burner.&nbsp; This may give impetus to the bipartisan CPI for Seniors Act.&nbsp; This legislation would establish the <a href="http://www.printthis.clickability.com/pt/cpt?action=cpt&amp;title=RetireSafe+Urges+House+Members+to+Stand+Up+for+Older+Americans+and+Cosponsor+the+CPI+for+Seniors...+--+WASHINGTON%2C+March+26+%2FPRNewswire-USNewswire%2F+--&amp;expire=&amp;urlID=423940358&amp;fb=Y&amp;url=http%3A%2F%2Fwww.prnewswire.com%2Fnews-releases%2Fretiresafe-urges-house-members-to-stand-up-for-older-americans-and-cosponsor-the-cpi-for-seniors-act-now-89267572.html&amp;partnerID=506122&amp;cid=89267572">CPI-S</a> to correctly measure seniors' actual costs and expenses.</p>
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Business

COLA Drought

Until January of this year, Social Security checks had gone up routinely every year since 1975, when the first automatic cost-of-living adjustment (COLA) took effect.  The 2010 COLA didn't happen and without intervention it's unlikely that there will be a 2011 COLA either.

These COLAs are based on the Consumer Price Index (CPI) version which represents the consumer spending of urban wage earners in clerical or other positions.  Since the CPI has been esentially flat due to the economic downturn, it hasn't triggered the COLA.  Questions are being raised, however, as to the suitability of this benchmark.  This CPI version seems not to reflect the consumption patterns of older people, particularly when it comes to medical and health expenditure.

When 92% of retirees in one survey report that Social Security is the major source of their income, this issue looms large.  As of March, 43.5 million retirees (and 10.2 million people with disabilities) collect monthly benefits.  Millions of these retirees have claimed their benefits early to replace income lost to layoffs or to supplement income due to underemployment.

Because lawmakers are afraid of voter backlash, no major Social Security reform legislation seems likely this election year.  However, since Social Security is the only post-retirement revenue source that retirees cannot outlive, as 2011 draws nearer as a second straight non-COLA year legislators will find it difficult to keep this issue on the back burner.  This may give impetus to the bipartisan CPI for Seniors Act.  This legislation would establish the CPI-S to correctly measure seniors' actual costs and expenses.


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