Social Security COLA Going Up Most Since 1982
By Jon Flynn
The Social Security
Administration announced on October 16th that Social Security
benefits are going up 5.8% in January.
For the typical retired worker it means a monthly benefit in 2009 of
$1,153 versus the current $1,090. That’s
an increase of $63 a month for the average retired person. This is the largest
cost of living adjustment since 1982.
This comes after last years modest increase of just 2.2%. The adjustment
is meant to help seniors fight the harmful effects of inflation on their
purchasing power.
The COLA is based on the
change in consumer prices from the quarter ending in September of 2006 to the
quarter just ending in September of this year.
Energy prices make up a part of the COLA calculation. Although energy prices are up over last year,
they did come down a little toward the end of the quarter, or the COLA increase
might have been even greater than 5.8%. However, energy prices continued to
fall sharply in October, but fortunately after the calculations were already
made.
Other key components of
the COLA calculation are food and medical costs. Both of these were up quite a bit but were
offset by other components like electronics and computers. As we all are aware,
seniors are much more economically sensitive to increases in food and medical
than the latest high-tech gadgets that are marketed toward businesses and kids.
When you look at inflation
closely, the biggest increases to date have been in the items that seniors are
most hurt by like food, medical, and energy.
Imagine a social security
recipient with a to-do list like this:
1.)
Go to doctors’
appointment and stop at pharmacy.
2.)
Pick up a food
order at the grocery store.
3.)
Pay the heating
oil bill.
4.)
Fill car up with
gas.
If you put a check mark by
each item on the list that has gone up, you’ll end up marking every single one
of them. As a result the average person
collecting social security may end up feeling a bit squeezed financially. That may just be an understatement if the
trend in these prices continue going the way they have.
Rising prices are hard
enough to deal with, but the turbulent financial markets aren’t helping
either. We all are aware that the stock
market has declined a great deal. This
no doubt has hurt the retirement savings of many younger working folks that are
not yet retired. However the story not
told is how retirees are taking a hit as well with investments that typically
have had “low volatility” in the past.
Many Americans aren’t aware of the huge declines in the bond market,
typically a safe haven for retirees. As
a result of the declines in both the stock and bond markets, it seems 2009 will
be challenging time for both young and old.
Jon Flynn is a
Certified Financial Planner TM and owner of Flynn Financial in
Eynon. He is a Representative of Securities America, Inc., Member FINRA/SIPC
and of Securities America Advisors, Inc. Flynn Financial and Securities America
are unaffiliated. Mr. Flynn can be
reached at 570-876-5015.