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Annual Social Security adjustment will be a meager increase

The annual cost-of-living adjustment to Social Security recipients is expected to be between a 1 to 2 percent increase, among the lowest automatic adjustments since 1975.

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"It's useful to bear in mind that no other group in the economy gets an automatic cost-of-living increase in their income," said David Blau, an economist at The Ohio State University. "Seniors are the only group."

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Still, many feel like the COLA doesn't cover their rising costs.

"You have utilities go up, your food costs go up. Think about how much groceries have gone up," said Janice Durflinger, a 76-year-old widow in Lincoln, Neb. "I would love to know how they figure that."

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

In the past year, food prices have risen 2 percent while home energy prices have dropped 3.8 percent, according to the CPI-W. Housing costs have climbed by 1.4 percent and gasoline prices have increased by 1.8 percent.

Blau said it's common for seniors to feel like the COLA doesn't reflect their rising costs, in part because older people tend to spend more of their income on health care. Medical costs have risen 4.3 percent in the past year as measured by the CPI-W.

"Inflation affects everybody differently unless you happen to be that mythical average person who buys the average bundle of goods," Blau said.

By law, the Social Security Administration compares the price index for July, August and September with consumer prices in the same three months from the last year in which a COLA was awarded. A COLA was awarded a year ago, so the index from July, August and September of this year is being compared with the index from the same period in 2011.

If prices go up over the course of the year, benefits go up, starting with payments delivered in January. But if prices go down, benefits stay the same. That's what happened in 2010 and 2011, when there was no COLA.

This year, consumer prices for July and August indicate next year's COLA would be 1.4 percent. The price index for September — the final piece of the puzzle — will be released Tuesday. Several economists said they don't expect it to change the projected COLA by more than a few tenths of a percentage point, if at all.

Vlasenko estimates the COLA will be from 1.5 percent to 1.7 percent. AARP estimates it will be about 1.5 percent.

Since 1975, the annual COLA has averaged 4.2 percent. Only five times has it been below 2 percent, including the two times it was zero. Before 1975, it took an act of Congress to increase Social Security payments.

"Over the past year, consumer prices have only gone up a little bit," Blau said. "By historical standards, it's a very low rate of increase."

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