Social Security Makes the Call: No 2010 COLA

Action will affect Medicare also, and spurs drive for one-time $250 payments.

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The Social Security Administration (SSA) announced on October 15 that the absence of consumer price inflation means the agency will provide no cost of living adjustment (COLA) for Social Security recipients in 2010. The widely expected announcement comes after last year's 5.8 percent COLA—largest in 25 years—and hits retirees during what's being regarded as the worst economic downturn since the Great Depression.

[See Poor Social Security Knowledge Has Big Costs.]  Even before the formal announcement, retirement groups and numerous legislators had begun pushing for a $250 payment to persons who receive Social Security, are veterans, or disabled. If approved by Congress, this payment would total about $13 billion and go out early next year to an estimated 57 million Americans.

As he made the formal announcement, Social Security Commissioner Michael J. Astrue pushed for approval of the payment, which would follow an earlier $250 payment made last spring. AARP renewed its push as well, saying in a statement that "the 65-plus population is facing extreme financial hardship; older Americans are paying more out of pocket for medical care, have experienced a real decline in their retirement accounts and in housing values, face longer periods of unemployment for those who need to work, and low returns on interest-bearing accounts. Without relief, millions of older Americans will be unable to afford skyrocketing healthcare and prescription drug costs, as well as other basic necessities."

Because there will be no COLA increase in 2010, SSA said, there will also be no changes in the various outside earnings tests that can reduce benefits and affect taxable incomes of recipients.

The agency's action also means that basic Medicare Part B premiums for doctors fees and non-hospital services for most recipients cannot be increased in 2010. However, the agency noted in its formal announcement that higher-income beneficiaries and new recipients who become eligible for Medicare in 2010 will not be protected from possible increases. The U.S. House of Representatives last month passed legislation to protect this group from big rate increases. The Obama Administration has urged the U.S. Senate to enact the provision promptly, so that the SSA can made update its computer systems to reflect changes before 2010 premiums are due.

[See Why Retirement Spending Is More Art Than Science.]