Social Security: No 2011 increase

chart_social_security.top.gif By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney.com) -- Social Security beneficiaries will see no increase in their benefit checks next year, the federal government said on Friday.

For more than 58 million seniors and other Social Security beneficiaries, 2011 will mark the second year in a row without an inflation adjustment.

Inflation has been low in the past two years because of the recession. The Bureau of Labor Statistics on Friday morning reported prices were up only slightly over last year.

The last Social Security inflation adjustment was in 2009: Beneficiaries got a higher-than-normal 5.8% increase because of a temporary spike in energy prices in the third quarter of 2008.

Soon after, however, energy prices plummeted. Then the bottom fell out of the economy and by the third quarter of 2009 overall price levels had fallen 2.1% from the same period a year earlier. That meant no increase in 2010 Social Security benefit checks.

This year, while there has been some inflation, prices remain lower than they were in the third quarter of 2008 -- and that's the quarter that counts.

By law, the Social Security Administration is required to track inflation using the most recent third quarter that led to an adjustment. So the 2011 decision is based on the change in inflation between the third quarter of 2008 and the third quarter of 2010. ('What deflation -- prices are rising!')

The finance and economics blog Calculated Risk noted recently that even though retirees will go two years without an increase, "those receiving benefits are still ahead because of the huge increase [they got in 2009]."

Out-of-pocket health costs rising: Even if that is correct mathematically, the idea of another year without a pay hike isn't likely to be popular with the people who receive Social Security retirement, disability or supplemental income benefits.

"[T]he average senior can still expect to see 27% of his/her Social Security check eaten away by Medicare premiums and out-of-pocket costs next year," said Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare.

There is, however, a "hold harmless" provision that protects more than 70% of beneficiaries from having to pay higher Part B Medicare premiums, should they increase, the Social Security Administration said. (Social Security: Take the quiz)

Push for extra help: The Obama administration made a failed push last year to offer $250 payments to Social Security recipients to compensate for the lack of a COLA and to serve as economic stimulus. Such a move would have cost roughly $14 billion.

This week, House Democrats said they will try to push a similar measure when Congress reconvenes after the mid-term elections in November. And on Friday morning the White House said President Obama would renew his call for the extra $250 payment.

Critics of the idea have pointed out that Social Security benefits are intended to maintain purchasing power -- which by the inflation measures used they have. And, they noted, benefits don't decline when prices decline, which happened in 2009.

For high-income Americans still in the labor force, there's a bit of bright news: Since there is no COLA for 2011, there will also be no increase in the amount of earnings subject to the Social Security tax, which is currently assessed on the first $106,800 of a person's wages. To top of page

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