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
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: Suggested Citation