Oct 18, 8:57 AM EDT

Another year, another small Social Security bump


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Another year, another small Social Security bump

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WASHINGTON (AP) -- For the third straight year, millions of Social Security recipients, disabled veterans and federal retirees can expect historically small increases in their benefits come January.

Preliminary figures suggest the annual cost-of-living adjustment, or COLA, will be less than 2 percent. That translates to a raise of about $20 a month for the typical Social Security beneficiary.

The government is scheduled to announce the COLA on Wednesday, when it releases the latest measure of consumer prices. By law, the COLA is based on inflation, which is well below historical averages so far this year.

For example, gas prices are down from a year ago, and so is the cost of clothing. Prices for meat, fish and eggs are up nearly 9 percent, but overall food costs are up less than 3 percent, according to the government's inflation report for August.

Medical costs, which disproportionately affect older people, are only 1.8 percent higher.

But good news at the pump means bad news for benefit increases. Many older people who rely on Social Security are feeling the pinch of tiny benefit increases year after year.

"You lose that increase, not only in the short-term, you lose the compounding over time," said Mary Johnson of The Senior Citizens League. "For the middle class, for people that don't qualify for low-income programs, they are dipping into savings or they are borrowing against their homes."

The Senior Citizens League projects the COLA will be 1.7 percent, which is in line with other estimates. Economist Polina Vlasenko, a research fellow at the American Institute for Economic Research, projects the COLA will be between 1.6 percent and 1.8 percent.

Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits.

For the first 35 years, the COLA was less than 2 percent only three times. If the COLA is less than 2 percent next year, it would be the fifth time in six years. This year's increase was 1.5 percent, the year before it was 1.7 percent.

Susan Gross gets hit twice by the small COLA. She cares for both her disabled son and her 89-year-old mother, both of whom get Social Security benefits.

A 1.7 percent increase comes to $12.60 a month for her son, said Gross, who lives in rural Barboursville, Virginia.

"That won't even pay for his prescription program," she said.

Gross, who works in an accounting office, said her family makes due by growing and canning much of their own food, which they can do because they live in the country.

"It makes our grocery bills less," she said.

More than 70 million people receive benefits affected by the annual COLA.

About 59 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,191. A 1.7 percent raise would increase the typical monthly payment by about $20.

The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor.

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The COLA is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.

This year, average prices for July and August were 1.7 percent higher than they were a year ago, according to the CPI-W. The September report - the final piece of the puzzle - is scheduled to be released Wednesday. Once it is released, the COLA can be announced.

It would take a dramatic increase in consumer prices for September to nudge the COLA above 2 percent.

"In general I don't think there was a huge increase in prices in September," said Vlasenko, the economist. "Fuel prices probably dropped and they have a ripple effect."

According to AAA, the average price of a gallon of regular gasoline is $3.14. A month ago, it was $3.37.

Advocates for seniors say the government's measure of inflation doesn't accurately reflect price increases faced by older Americans because they tend to spend more of their income on health care. The rise in medical costs has slowed in recent years, but that may be little comfort to someone who is suddenly hit with a serious illness.

Older people on Medicare usually have their Part B premiums deducted from Social Security payments. The good news is that the premiums, which cover outpatient care, are scheduled to stay the same next year - $104.90 a month.

"Our members are not calling us and saying that the COLA that they're getting is enough," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "They're facing serious economic challenges in terms of just buying the basic necessities of life."

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