I got suckered into reading this article on MSN from the title:
There was a stock photo of two obviously very depressed seniors right next to that headline. At first I thought, “Man, the other shoe dropped fast!” but the article revealed the context of the $10,000: no cost-of-living adjustment for 2010.
Here's the math on how “no adjustment for inflation next year” translates to “$10,000.” The average monthly Social Security check is $1,161, according to the article. The 3% cost-of-living adjustment they won't get means $35 extra per month, from now on, that they won't get.
Compound this $35 per month deficit at a 2% annual rate (a savings account-ish rate), for twenty years, and you arrive at a little over $10,000.
Yes, the headline “A $10,000 Social Security hit” is a lot more sensational than something that mentions cost of living. I may have read through the headline had it been like that. What the headline did do, though, is call to attention that this isn't jut a loss for next year, but for every year after that.
One of my colleagues said that if given the choice between a raise and a bonus, you should always go for the raise. Why? Because the bonus is one-time, and the raise is ongoing. The same is true in the other direction: the $250 that President Obama would like to give to seniors in order to make things hurt less is one-time, but the lack of a raise is ongoing. It's compounding in reverse.
This lack of COLA increases the disparity between rising prices and benefits, and accentuates that inflation makes us poorer. Benefits don't need to be cut directly to reduce the real cost of the program.
The benefits just need to be held where they are to reduce the real cost.
Well, what is bad news for beneficiaries has to be good news for taxpayers – they could do with some.
With respect, I actually disagree with the comment about taking the raise instead of the bonus (although it depends on how you cut the numbers and yoru assesment of other future events): http://aprivateportfolio.blogspot.com/2009/10/bonus-v-raise.html
Did everyone forget they got a 5.8% raise last year followed by little to no inflation?
If the CPI doesn’t go up, then Social Security payments won’t go up. That shouldn’t be a surprise.
However, I do think the CPI isn’t the best measurement to track inflation for seniors, whose main costs include more health care than the typical urban consumer.
Perhaps they should all give back the 2.8% extra they got last year (above the 3% average ), and then get a 3% increase on top of the 3% they almost coulda-shoulda-woulda got if everyone had predicted the non-inflation of 2009.
Or someone should write a long article headlined “The $20,000 windfall bailout for Seniors”, and explain how the unneccessary 5.8% increase translates to a $20,000 unearned bonus.
Oh wait – that wouldn’t sell ANY advertising in the next issue, and might generate some outraged letters to the editor.