Do seniors on Social Security deserve that raise next year?

Elected officials seem eager to raise Social Security payments for seniors, even though inflation has been flat. It could lead to larger costs in the future, some analysts warn.

By , Staff writer

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    Retired beer truck driver Frank Ferrira, 90, talks about social security Thursday, Oct. 15, 2009 at the Pembroke Pines, Fla. Southwest Focal Senior Center. Though seniors won’t be getting extra cash this year, they will be able to buy more with their Social Security checks due to falling prices of goods and services.
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US seniors will be able to buy more with their Social Security checks this year, even though they won’t be getting extra cash via a cost of living adjustment (COLA), according to some analysts.

That is because the price of goods and services in America has fallen significantly since the period on which the last Social Security benefit increase was based. In addition, for most Social Security recipients, Medicare Part B premiums – which are deducted from their government checks – will be frozen.

The bottom line? The purchasing power of a typical retiree will jump by about $725 next year, according to Andrew Biggs, a former deputy commissioner of Social Security.

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That calls into question the necessity of Congress voting seniors a one-time $250 payment, as President Obama has proposed, writes Mr. Biggs, now a scholar at the American Enterprise Institute, in a new analysis.

“An ad hoc COLA payment is unnecessary and could lead to larger costs down the road,” writes Biggs.

This week Social Security officially announced that there will be no inflation-related increase in benefits in 2010. The COLA freeze is the first since automatic Social Security cost-of-living increases were adopted in 1975.

Washington is already jostling to run to the rescue of seniors dismayed at this news. There are at least five bills before Congress to bolster senior incomes in 2010 or beyond. Now that Mr. Obama has weighed in with his own proposal, it’s likely that seniors will get some kind of bonus check in next year’s mail.

Seniors struggling to balance their budgets surely feel such an increase would be warranted. And Social Security alone is not a stipend that supports them in luxury.

But strictly speaking, the economic case for a COLA-type adjustment is weak, according to some experts. The inflation data show that prices have fallen in the past year and are not expected to return to their previous peak until the middle of 2011.

In fact, prices have slid so much that if benefits were pegged to them directly, Social Security recipients would receive a cut of 2.1 percent in their checks, beginning next January, according to Kathy Ruffing, a senior policy analyst at the Center on Budget and Policy Priorities.

“Fortunately for those recipients, the program's statutes bar a downward adjustment of benefits,” said Ms. Ruffing in a study released Oct. 15.

This would be true even if Social Security payments were tied to an experimental Consumer Price Index that focuses on items purchased by the elderly.

In addition, by law, Medicare Part B premiums are frozen when Social Security recipients receive no increase in benefits. These premiums pay part of Medicare’s cost for physician services and other nonhospital treatments.

Taking all this into account, recipient purchasing power will increase “significantly” this year even without any bonus checks, according to Biggs.

None of this means that it is easy for a lower earner to survive on Social Security, Biggs adds. Many recipients receive lower benefits than is commonly understood.

“Yet the level of benefits is a different question from how benefits should be adjusted to compensate for inflation,” he writes.

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