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Social Security and the COLA

By Jennie L. Phipps ·
Thursday, December 16, 2010
Posted: 3 pm ET

Social Security cost of living adjustments, or COLAs, are shaping up to be a major retirement planning issue in 2011.

Here are the two factors that retirees or people thinking about retirement ought to consider.

One is the overly generous COLA that Social Security recipients got in 2009, resulting inadvertently in no COLA in either 2010 or 2011 -- a freeze that will cut benefits for new retirees for the rest of their lives.

It worked this way, according to the Center for Retirement Research at Boston College. The Consumer Price Index, which triggers the COLA, increased significantly through mid-2008, driven by rising energy costs. This price increase caused a 5.8 percent COLA to be announced in the fall of 2008, the largest since 1982. Immediately after the COLA was set, prices declined, but the law requires that Social Security recipients be given the increase anyway, and they were.

Cost of No COLA
Year of birth 62-year-old retiree 66-year-old retiree
1946 -$30,163.60 -$39,152.50
1947 -$31,436.10 -$39,463.20
1948 -$20,871.00 -$26,130.60
1949 -$8,908.90 -$11,141.30
1950 -$2,229.20 -$2,880.90
1951 -$463.00 -$648.70
Source: Senior Citizens League

To compensate for an increase that was greater than inflation, Social Security announced that there would be no COLA in either 2010 or 2011. If CPI rises as expected, there will be a minimal 1.4 percent COLA in 2012.

Today, the Senior Citizens League, which claims to be the nation's largest organization of seniors, calculated the loss of the compounding effect of  missing two years' worth of COLAs on 25 years of benefits. You can see their results in the accompanying chart. Seniors who turn 62 during the years of no COLA will be affected the most. If you were born in 1946 and claim Social Security at 62 and get an average amount -- about $1,150 in monthly benefits -- you'll receive $30,163.60 less over 25 years than you would if you had been born in 1945, according to the Senior Citizens League calculations. The league is recommending an emergency increase to eliminate this reduction.

The second thing that could affect COLAs for every Social Security recipient -- not just new retirees -- is the deficit reduction proposal to change how the COLA is calculated from the CPI-W to the C-CPI-U, or Chained CPI. That change is estimated to reduce annual increases by three-tenths of 1 percent. That may not sound like much, but for someone who started collecting at 62 and who lives to age 92, it would cut lifetime benefits by about 9 percent, or about $22,000, according to the National Academy of Social Insurance.

Is that an unreasonable sacrifice to ask seniors to make in order to leave our children with less of a fiscal burden? I don't think it is, but others clearly perceive it differently. How do you see it?

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Suz Chavorie
December 29, 2010 at 11:55 pm

I too am an upper level Boomer and Receiving SS disability after a 32 year hi-tech medical career.
while I totally agree with all the previous postings---- I can't help but wonder. WHY no one (except me). Seems disturbed by the foreign nationals & yes--- illegal aliens--- receiving financial benefits from OUR $$$$ under the guise of SSI stamps,....& yes---they even receive a housing allowance!

Theybeing funded by the $$$ former Boomers put INTO our Social Security

G. Malec
December 23, 2010 at 1:47 pm

I don't know anymore who to vote for. Just with regard to the COLA, "this administration" (the Democrats) are being blamed for the lack of COLA. The Democrats say, if the Republicans are in office, there goes social security, etc. etc. I can no longer trust either party. What does one do? It is a quandary.

December 21, 2010 at 4:00 pm

I get $815.00 in Social Security and had $2.00 left in my checking account after I paid my bills this month. Christmas tree ... not this year. Presents ... not this year. Christmas dinner ... not this year. Vacation ... not this year. Home repairs (some critical) ... not this year. Gardener ... not this year. Do any of these men commenting on the COLA do the grocery shopping. I doubt it. Grocery prices have skyrocketed. Food ... maybe next month.

David Pirtle
December 17, 2010 at 9:58 pm

Since the COLA increase/decrease doesn't take the actual necessities upon which seniors are surviving into account (i.e. food, rent, medical copays, power...) its laughable to call this system fair in the best of times. Today, when the economy has never been worse in the living memory of most americans, calling on the elderly and disabled to make sacrifices while gifting the wealthiest in this nation 700 billion in tax cuts is simply immoral. There is no other word for it.

December 17, 2010 at 7:17 pm

I sooooo agree with pappyg and his proven fact and statements. I go to bed at night wondering what rules were overridden by our congress "of the people" to transfer the surplus SS into the general fund. I strongly feel that Congress should take a "financial holiday" and receive NO 3% increases from the General Fund for the next 2 years.

End the Ponzi Scheme
December 17, 2010 at 9:30 am

I don't recall anyone in 2009 wanting to get less of an increase based on the same formula run on 2008 numbers. By the end of 2008 the prices had already plummeted, so the gap was not unseen even then.

The formula is what it is, you don't seem to be complaining about the formula, just that someone won't get more because of it.

On the change from CPI-W to C-CPI-U, if you had mentioned what each of those are, you might have a better case. CPI-W is the cost of living for an urban wage earners and clerical workers, essentially clerical, craftsmen, operators, service people, and general labor, what is essentially blue-collar workers, but not management, technical workers, self employed, unemployed and retired. Theoretically, these people turn into the core social security recipients, since they should have paid into the system.

C-CPI-U is cost of living for all consumers in an urban area. HUGE distinction here, no mention of WORK. If you are living in a city, and spend, these are your costs.

I would agree that if you wanted to have folks who work get the CPI-W, I wouldn't disagree, but everyone else needs to be on C-CPI-U. Since it's nearly impossible for the government to keep things straight, they have to pick one.

Since I haven't found the weighting factors on the various categories, I don't know why one is less than the other, but the C-CPI-U seems to have a reasonable budget allocation to the various categories. If you can find the CPI-W weightings, perhaps a comparison of what is valued less would be more apparent. For instance, if housing is less in one (retirees should have the house paid for, so there isn't a mortgage payment each month), then the switch is probably fair. As it is in C-CPI-U, housing is #1 at 42%, followed by transportation at 17%, and food at 14%. Medical care, recreation, and education are essentially tied at 6% each.

rob grant
December 17, 2010 at 7:36 am

It is unbelievable how this administration has been beating up on retirees and the disabled. They say that the 5% increase in 2009 was too great an increase following 1 and 2% increases in previous year, while Congress manages to eke out solid 3% increases for itself every single year. This is over and above all of the other benefits they receive not to mention free postage they use to campaign with. How would you like free postage to mail out the 100's of resumes you need to send out in order to try and find a job?

The method used to determine inflation needs to be changed. My grocery bill has more than doubled, the cost of my cable and telephone bills have increased, my insurance copays and prescription costs have sky-rocketed, and now flex spending accounts can no longer deduct OTC meds, instead you'll need to go to the doctor to buy OTC cold medications and the like.

I certainly hope the changes we put in place with Congress on election day 11/2010 will bring reasonable and realistic social security colas. If not maybe we'll need to start tweaking our "leadership" a bit more. Hell, why not layoff Congress for a few years and see how we do without them? We can use the savings to fund a much needed COLA for social security recipients.

Think about it America. It is Congress that's spending your hard earned money. Why not just fire them?

December 17, 2010 at 6:22 am

Time To “MAN UP”
When two party agreements are entered into, the agreement’s success hinges on both parties living up to their end of the bargain. Today we’re having the wrong conversation regarding Social Security. President Reagan signed SS reform legislation in 1983 that created an agreement between the people and their government. At the official signing of the agreement, the President said, Social Security is “fixed for the next 75 years” - Remember? As per that agreement millions of average hard working Americans began overpaying their SS taxes by billions of dollars annually so another SS crisis conversation in 2011 wouldn’t be necessary - Remember?

More than likely you're one of those hard working Americans who’ve generated 12.4 cents for the SS trust fund for every dollar you’ve earned. Remember the financial sacrifices this agreement caused you and your family to make? In spite of significant financial sacrifices and pain, you kept your end of the bargain - Remember? Now politicians are suggesting those same hard working Americans should sacrifice again by raising the SS retirement age, and adjusting future SS benefits. Wouldn’t you agree the other party to this agreement should start doing a little sacrificing by living up to their end of the bargain? The other party benefitted when 2.54 trillion dollars of potential SS trust fund retirement dollar assets were transferred from the SS trust fund to the general revenue fund, leaving behind 2.54 trillion in new debt. Politicians have used the people’s sacrificial retirement dollars to subsidize corporate and income tax rates, fund tax cuts, pay for wars, and mask the true size of annual federal budget deficits among other things. If a deal really is a deal, then the other party to this deal should “MAN UP” by living up to their end of the bargain.

This Social Security dialogue is not one working Americans can afford to ignore, this conversation must begin anew. The talking points must be fair and balanced and to the point, and the point is; working Americans have kept their end of the deal, now keep your end, and until you do, don’t ask us to sacrifice again. It’s time for those who’ve ridden the backs of average working Americans to their prosperity to “MAN UP” and fulfill their obligations.

Donald Hogue
December 16, 2010 at 10:15 pm

I see no reason why SS recipients can't sacrifice to benefit the future. My wife and I are both recipients are not rich by any measure but depend on the benefits. And to cap the COLAs to a rate less than 1% would felt but not present a problem. We can deal with it.

If the thought is to hedge the loss of future benefits based on compounding the net effect of retiring now into a COLA world it must be considered that the calculation of future inflation will also be reduced by the same two years setback or more when the COLAs are in place. It is like compensating for the loss in anticipated future profit based on based on today's record low FED rates.

Come on folks, suck it up and deal with it. Be delighted that we live in a country where SS is still viable and the checks don't bounce.


I think is ludicrous to game the system by compensating pending retirees for an anomaly in the current financial condition on the date they retire. A more patriotic and less selfish approach might be to delay retirement a couple of years and reap the delayed retirement benefits already built into SS.

This country must STOP rewarding every group who feels personally cheated because of unforeseen circumstances.

December 16, 2010 at 6:40 pm

$1,150 huh? That would be lovely. I am 67 and getting $820.00 Living is T I G H T. I barely survive with the little work I am able to find. (And I have to pay Social Security on that.) I can't afford Medicare part B. Which means it will be more expensive for every year that I don't get it, meaning I will never have health care. Yes, I know that there are programs that help me pay for Part B, but I make too much money. HAHAHAHAHHA