A Diet COLA for Social Security? Not Really

AEI Retirement Policy Outlook, No. 5, 2009

6 Pages Posted: 29 Oct 2009

Date Written: October 9, 2009

Abstract

Due to falling prices, Social Security will make no cost-of-living adjustment (COLA) to retirement benefits in 2010. Retirees, who feel their benefits are too low and believe the prices they pay are rising, are up in arms. Newspaper headlines announce, "Millions face shrinking Social Security payments," and seniors' groups are already pressuring Congress to pass an ad hoc COLA this year. But most retirees do not know that "no COLA" can actually translate into big benefit increases. When falling prices coincide with stable benefits, purchasing power increases. Moreover, Medicare premium increases are limited in years in which no COLA is paid. Combined, the typical retiree will be better off by almost $725 this year. Paying a COLA this year is unnecessary and would boost the long-term Social Security deficit.

Keywords: Social Security, inflation, COLA, cost of living adjustment

JEL Classification: H55

Suggested Citation

Biggs, Andrew G., A Diet COLA for Social Security? Not Really (October 9, 2009). AEI Retirement Policy Outlook, No. 5, 2009, Available at SSRN: https://ssrn.com/abstract=1496023

Andrew G. Biggs (Contact Author)

American Enterprise Institute ( email )

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Washington, DC 20036
United States
202-862-5841 (Phone)

HOME PAGE: http://www.aei.org

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