Social Security COLA

Many seniors receiving Social Security pay attention to the Consumer Price Index (CPI) once a year in November when the Social Security Administration (SSA) sends its annual notice of the cost of living adjustment (COLA) for the next calendar year. Although Social Security payments are set for a calendar year, the adjustment is based on the change in the CPI during the Federal Government’s fiscal year, which runs from October thru September.  On October 19th, the Bureau of Labor Statistics (BLS) will announce their monthly CPI figure for September, effectively giving Federal agencies their annual COLA figure.

Following this announcement from the BLS, the SSA will start drafting their notices, which they will send out in November.  Based on previous CPI data from the BLS and a seat of the pants estimate for September, I would guess that the COLA adjustment will be about 4.1%, an increase of $50 a month for the someone who receives an average monthly benefit of $1200.

What is good for seniors is not so good for Federal budget makers.  In August of this year, SSA paid out almost $60 billion in Social Security benefits to 55 million beneficiaries.  Multiply that monthly figure by 12 to get an annual payout of about $720 billion, or about 20% of the total amount of money the Federal government will pay out this year.  Now add a 4.1% COLA, which is about $30 billion extra that will need to be paid out next year.  Social Security taxes collected will just about cover the payments, leaving nothing extra for the Federal government to “borrow” from the Social Security trust funds.

Defense spending, including benefits, medical care and job training for retired vets totals more than a $1 trillion, or almost a third of the total federal budget, far more than the 25% spent during the years of the Reagan administration.  In a speech this past week at the Citadel, a military academy,  Mitt Romney, the leading Republican presidential contender, announced that, if elected in 2012, he would expand military spending even more than current levels.  How will he pay for this further build up?  If there is a Republican congress, there won’t be any tax increases.  That leaves only two alternatives:  drastically increase the federal debt more than Bush and Obama have already done, or get the money where he and the Republican congress can get it from – Social Security beneficiaries.  The bond market won’t let Romney run up too much more debt so that leaves only one alternative – reduce benefits to seniors.  Unlike younger people, seniors vote so the plan will be along the lines that Eric Cantor, the House Majority Leader, proposed this past year: keep benefits the same for those already retired and soon to retire and reduce future benefits for those 55 and younger.  That will be the starting place.  Next will come an adjustment to the calculation of the COLA.  As you can see above, a reduction in the annual Social Security COLA may be the weekly food cost for a thrifty retiree but means billions of dollars in money to the Federal government – billions that Romney can spend with defense companies.

Voters have two choices:  Get angry before the politicians screw us when we have some chance to change the outcome, or get angry after they screw us. 

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