Retirees might get raise in 2010, after all

Click here: Retirees might get raise in 2010, after all The Columbus Dispatch

Social Security 'bonus' being debated
Sunday, October 4, 2009 3:29 AM
By Greg Burns
CHICAGO TRIBUNE

If Uncle Sam plays by the rules, Social Security will award no cost-of-living increase for next year or, very likely, the year after that.
But on Capitol Hill during hard economic times, rules are being broken all over the place. It's difficult to imagine the big spenders who bailed out Wall Street and spread around stimulus funds by the billions will be stiffing a powerful voting bloc.
Already, legislation is afoot to provide an "emergency" bonus or raise, even though the cost of living has fallen sharply by the standard measure used to calculate it.
As everyone receiving a Social Security benefit understands, it's no bonanza. But it's better than a paycheck in several respects: By law, the rates can't go down. And until now, by law, they've continually gone up.

Seniors once needed an act of Congress to get a raise. Beginning in 1975, however, increases became automatic based on a measure of inflation that factors in food, fuel and other volatile expenditures. The result has been a boost every year, ranging from 14.3 percent in 1980 to a low of 1.3 percent in 1987 and again in 1999.
The rate is set according to just three months of data: August, September and October. Last year, amid runaway gas prices, the index dictated a 5.8 percent raise, which was awarded in January. This year, prices have fallen every month, and there's no chance of the index suddenly turning much higher with one month to go before the cost-of-living adjustment is set. The Congressional Budget Office projects no annual benefit boost for 2010 or 2011.
Almost no one thinks a three-month reading accurately measures inflation. Many think the index overstates the number.
"That's the strong consensus of economists who have looked at it," said Bruce Meyer, a University of Chicago professor who studies government transfer payments. "In general, it's a good deal for seniors."
No, it's a bad deal, say New York financial adviser Louise Yamada and other critics. If the government looked realistically at what people actually buy, then inflation would be pegged at roughly 5 percent today, not less than zero, she said. Seniors, who typically spend more on health care and in some cases face a Medicare premium increase, arguably have it worse than everybody else.
A more sensible approach would involve smoothing the ups and downs by adopting a moving average that looks at several years of data.
"It's totally artificial to have no increase after an excessive increase last year," said economist William Hummer of Chicago's Wayne Hummer Investments. "Use the last three years and go from there. That would be fairer to everyone."