For First Time Since 1975, No Social Security COLA Increase

Social Security recipients looking forward to a cost of living adjustment – also referred to as a "COLA" – will be disappointed next year. For the first time since the automatic adjustments were instituted in 1975, recipients of social security payments will not receive an increase in their payments. The adjustments, which are tied directly to inflation as measured by the Bureau of Labor Statistics Consumer Price Index (CPI), won’t go up next year because consumer prices actually fell during the past year.

While adjustments in January, 2009 resulted in a 5.8% increase in payments to recipients, due largely to increasing energy costs, prices have fallen 2.1%. There is no worry that payment will be adjusted downward, however, as the COLA clause only allows for upward movement of payouts. Despite the news that an increase won’t be coming, President Obama is extending stimulus funds to seniors, veterans, retired railroad workers and people with disabilities. Roughly 57 million people will receive checks for $250 as part of that plan.

Tom Nelson, chief operating officers of AARP, noted that "Without relief, millions of older Americans will be unable to afford skyrocketing health care and prescription drug costs, as well as other basic necessities." Obama was perhaps taking that into account when he announced the one-time $250 payments, but Andrew Biggs, a former deputy commissioner at the Social Security Administration has noted that "The real purchasing power of their benefits is actually higher today than it was last year. Nevertheless, there will be a big political price to pay if no COLA is granted." Those less friendly to the administration may point to the payments not as merely helping the needy, but as a shrewd political maneuver by the president as he eyes a 2012 re-election bid.