It's official. In 2011, for the second straight year, there will be no inflation-based increase in Social Security benefits. For many retirees and advocacy groups, this is seen as a disaster. That's not a surprise, and the comments from AARP are typical:
"Many Americans who rely on Social Security as their primary source of income continue to face financial hardship today," the group said in a statement issued on the eve of the agency's formal announcement. "Over the past two years, older Americans have paid more for utilities and food, experienced a decline in housing values, tried to recover from deep retirement account losses, struggled with rising health and prescription drug costs, and faced longer periods of unemployment for those who need to work. AARP is asking Congress to provide relief to millions of older Americans in the post-election session."
All true, but not the whole truth.
AARP's statement can be applied to all Americans. From record numbers of food stamp recipients to falling birth and marriage rates to millions of Americans who can't even afford to pay for prescribed drugs, it is so painfully clear that the nation is hurting. The right question is not whether retired Americans deserve better. We all deserve better. The right question is whether older Americans are relatively worse off than their younger neighbors and thus in need of special consideration.
The answer is clearly no. Here are three powerful reasons:
1. Looking at spending and income patterns in 2009, the government found that people 65 and older spent and earned more in 2009 than in 2008. The story for the rest of the country was just the opposite. According to the annual Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics, older Americans have not fared worse. They've done better.
2. The rate of poverty in the U.S. rose in 2009. The U.S. Census Bureau recently reported that 14.3 percent of Americans lived in poverty last year, up from 13.3 percent in 2008. That's to be expected given the length and severity of the recession.
Among people older than 65, however, the story was again reversed. The poverty rate of older Americans fell last year to 8.9 percent from 9.7 percent in 2008. Over the past 35 years—a period that matches the history of the annual Social Security COLA—the Census Bureau reports that the poverty rate of retirement-age Americans has fallen steadily and is now the lowest of any major demographic group. This is great news for older Americans. But it hardly makes the case that special relief is now needed.
3. There's a reason the COLA is zero for the second straight year. There is very little inflation in the United States. Sure, you can find some prices that are higher than two years ago. And it's definitely true that healthcare costs are higher. But the government has already enacted price relief for seniors from Medicare drug costs. Millions of folks on Medicare were issued $250 payments this year to help counter high drug costs. More relief is scheduled for next year. Younger consumers, who also face healthcare inflation, have not received such help.
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The other reality that often goes unmentioned is that the last Social Security COLA—announced in fall 2008 and effective for 2009 benefits—was a whopping 5.8 percent, the largest in the history of the COLA program. The size of that adjustment was largely the result of a spike in oil prices. Remember $4 a gallon gasoline in the summer of 2008? Well, it came and went, but that 5.8 percent boost in benefits has stayed. So while there was no COLA in 2010 and, now, in 2011, the higher floor of benefits that was created with the 2009 COLA is still being paid out.