WASHINGTON – With essentials like food, gasoline and medical care all rising at a faster clip, an extra $24 a month likely won't go very far. But that is the boost the typical retiree will see in Social Security checks come January.
The 2.3 percent increase in the cost-of-living adjustment that will go to 50 million Social Security recipients is the smallest in four years even though many prices are rising more quickly this year than last year.
Blame it on the vagaries of how the government computes the annual COLA. The price change is based on the amount the Consumer Price Index increases from July through September from one year to the next.
In the past two years, using the third quarter as a benchmark boosted the inflation adjustment, especially the 2006 increase, because it reflected the fact that gasoline and other energy products soared in September 2005 after Gulf Coast refineries shut down in the wake of Hurricane Katrina.
But this year, energy costs, which were up in the spring, have been falling in the summer, a fact that lowered the COLA change. However, analysts are expecting energy prices to resume rising in coming months given a recent run-up in global oil markets that has seen crude oil prices at record highs, close to $90 per barrel.
Big increases in food costs to highlight the opening wave of baby boomer retirements, a generation of 78 million people born from 1946 to 1964. The first of those boomers will turn 62 next year, making them eligible for Social Security benefits. An estimated 10,000 people per day will become eligible for Social Security benefits over the two decades, putting a severe strain on the pension program.
If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2041 and will begin paying out more in benefits that it collects in payroll taxes in 2017. Medicare is facing even greater problems because of the rapidly rising cost of health care.
President Bush pledged to make changes to Social Security the top priority of his second term. But his plan to provide private accounts for younger workers went nowhere in Congress and Republicans and Democrats remain deadlocked.