No Cost-of-Living Adjustment for Social Security Benefits

For the first time since 1975, Social Security beneficiaries will not receive a cost of living increase this year, and potentially next year. This will be a shock for most social security recipients as most of them have never faced this dilemma.

As gas prices rise, home values and investments sink and medical costs soar, most social security beneficiaries who are already on a fixed income will see the value of their benefits remain unchanged. For most beneficiaries this will not be a significant problem. Inflation has stayed relatively low with the poor economy and their Medicare Part B premiums will remain frozen. A large number of these beneficiaries however may see an increase in their Part D Medicare coverage, which mainly covers the cost of prescription drugs.

Approximately 25% of people receiving Social Security will see an increase in their Medicare Part B premiums. Those affected are those beneficiaries who: (a) do not have their Medicare premium withheld from their Social Security checks, (b) those who pay a higher Part B premium based on a higher income, or (c) those who are newly enrolled in Part B (in or after November 2009). The Congressional Budget Office predicts that Part B premiums could rise from approximately $96/month to $119/month.

In an attempt to offset this rise in premiums and the lack of a cost of living adjustment, the Obama administration has proposed a one-time $250 payment to beneficiaries, however the proposal is still in Congress and currently lacks significant support.

The legislature may still enact a flat cost of living adjustment to counteract this problem, however it is not anticipated. Until the economy recovers and inflation and the market rise, we may be facing a period where COLA is no longer part of the Social Security formula. The longer beneficiaries are denied COLA, the greater the problem of increasing Medicare premiums and rising medical costs.

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