Low U.S. inflation rate bites millions of retirees

Fri Oct 15, 2010 11:04am EDT

* No cost of living adjustment for second year in row

* Cap on taxable wages to stay at $106,800

* U.S. House to vote on $250 one-time payment

By Donna Smith

WASHINGTON, Oct 15 (Reuters) - Social Security benefits will not automatically increase next year for 58 million Americans because of the low U.S. inflation rate, the Social Security Administration announced on Friday.

This is the second year in a row that retirees and millions of disabled workers and survivors of deceased workers will not receive an automatic cost of living adjustment.

It comes at a time when retirees' savings -- often their only other source of income -- are earning poor returns because of low interest rates.

The average Social Security benefit is around $14,000 and experts say about one-third of retirees rely on the payouts from the government-run program for more than 90 percent of their income.

The maximum amount of wages that are taxed for Social Security program will also remain the same next year at $106,800, the Social Security Administration said.

The Social Security benefit has been adjusted since 1975 if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year of a cost-of-living adjustment (COLA) to the third quarter of the current year, the Social Security administration said.

"As determined by the Bureau of labor Statistics, there is no increase in the CPI-W from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010, therefore, under existing law, there can be no COLA in 2011," the agency said.

Data released by the U.S. Labor Department on Friday showed that the overall consumer price index rose 0.1 percent in September, while the core index, which excludes volatile food and energy prices, remained unchanged. [ID:nN15186694]

Overall consumer prices rose 1.1. percent from a year ago, while core prices were up 0.8 percent over the past 12 months.

OBAMA WEIGHS IN

U.S. House of Representatives Speaker Nancy Pelosi on Thursday announced a plan to provide a one-time payment of $250 for Social Security recipients as well as veterans. She said the House will vote on the legislation in a planned session after the Nov. 2 congressional elections.

President Barack Obama said he backed the plan, White House spokesman Robert Gibbs said in a statement.

"We urge members of Congress on both sides of the aisle to support our seniors, veterans and others with disabilities who depend on these benefits," Gibbs said.

It is unclear whether the measure would also pass the U.S. Senate amid growing concerns about the federal budget deficit.

Social Security faces increasing financial strains as the 77-million-strong baby boom generation retires. Social Security trustees said in August that the program's trust fund would be exhausted in 2037 and the program would only be able to pay out a portion of promised benefits.

Representative Dave Camp, the top Republican on the taxwriting House Ways and Means Committee, said the lack of a cost of living adjustment for Social Security serves as a reminder of the program's long-term financing problems.

"It will be difficult for many seniors to deal with the lack of a COLA for a second year in a row, but that will pale in comparison to the actual hardships future Social Security recipients will experience if Congress continues to ignore the program's underlying financial problems," he said in a statement.

Policymakers are considering a number of possible adjustments including raising the retirement age for full benefits to 70 years. The Social Security retirement age is being gradually increased to 67 from 65.

Obama said on Thursday that increasing the amount of wages subject to the Social Security tax would be the best approach to prolong the solvency of the popular retirement program. (Editing Paul Simao)

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Comments (4)
kayaker17 wrote:
After the hundreds of billions that were given to large companies and banks, who were largely responsible for their own financial troubles; giving only $250 to each senior is a disgrace when we are not responsible for the financial troubles the country faces. A country that gives billions to large companies because they are too big to fail and then gives only $250 to seniors because we are too small to matter, is doomed to fail. Most of us are already affected financially due to the collapse of interest rates on savings. How much is a senior worth to our country?

Oct 15, 2010 11:33am EDT  --  Report as abuse
Mike9999 wrote:
Not to sound heartless, but the purpose of a “Cost Of Living Adjustment” is to account for an increase in the cost of living. If the cost of living didn’t increase, then a COLA does not apply. To propose giving these people $250 two weeks before Election Day is more than a little disturbing, IMO.

Oct 15, 2010 11:40am EDT  --  Report as abuse
zotdoc wrote:
Social security benefits are a good idea, but the way it is financed is not so hot. It is just a big Ponzi scheme, with current workers paying the benefits of the retired. It should be a system in which money being paid in is invested in an account that the individual owns. Contrary to the article’s title, lack of inflation should be good for all fixed income folks. If you talk to grandpa, he’ll say that when he was working, the projected benefits sounded good, but now 20 years later the dollar amount won’t buy anywhere near what it did 20 years ago. Just another well intended program gone awry!

Oct 15, 2010 11:44am EDT  --  Report as abuse
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