For the first time in two years Social Security recipients will receive an increase in their payments beginning in January.
Officials with the Social Security Administration announced on Wednesday that 55 million elderly and 8 million beneficiaries in the Supplemental Security Income program would receive the 3.6 percent increase as part of a cost-of-living adjustment. It is the first increase since 2009, when a 5.8 percent increase was given.
Typically the cost-of-living adjustments are given to help recipients keep up with the rise of inflation when buying goods. Over the past two years, though, no increases were given because inflation was too low – the only two years since 1975 that there has been no COLA; however, recipients did receive a $250 payment from the 2009 federal stimulus package. With the increase this year, recipients would receive an average increase of $39 a month or about $455 a year.
Federal law actually requires Social Security to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers. Officials compare inflation in the third quarter of every year – the months of July, August and September – with the same months in the previous year. If consumer prices increase from year to year, Social Security recipients automatically get higher payments starting the next January. If price changes are negative, the payments stay at the same level.
“If you’ve been at the grocery store lately and remember what you used to pay for things, see what you’re paying for things today,” Web Phillips of the National Committee to Preserve Social Security and Medicare, said. “The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time.”
However, Social Security recipients will get the increase at the expense of having higher Medicare premiums.
“Today’s COLA announcement lets them know there’s some relief around the corner,” Max Richtman, president of the National Committee to Preserve Social Security and Medicare, said in a statement. “It may be cold comfort, however, once they see just how high next year’s Medicare premiums will go. While healthcare costs continue to erode seniors’ ability to keep up with inflation, Congress has yet to adopt a COLA formula that reflects the spending habits of seniors.”
Still for those recipients who rely on Social Security for more than 90 percent of their income, the additional $455 a year will not only help with their finances but also help the economy.
Mark Zandi, chief economist at Moody’s Analytics, said COLA would help increase consumer spending next year by roughly $25 billion in government support, or about 0.2 percent more in economic growth.
“It is not a magic bullet for the economy, but it will certainly be a positive for households on fixed incomes,” Zandi said.
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