Social Security Only Going Up 2.3 Pct.

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By MARTIN CRUTSINGER
The Associated Press
Wednesday, October 17, 2007; 5:50 PM

WASHINGTON -- Social Security benefits for nearly 50 million people will rise 2.3 percent starting in January, the smallest increase in four years. The typical retiree will face the challenge of using the extra $24 to cover higher costs for everything from gasoline and food to medical care.

The new cost-of-living figure announced Wednesday by the Social Security Administration means the typical retired worker's benefit check will go from $1,055 per month to $1,079.

The increase is the smallest since a 2.1 percent boost in 2004 and is a full percentage point lower than the 3.3 percent adjustment for 2007. In 2006, benefits rose by 4.1 percent, the biggest gain in 15 years.

The adjustment is based on the change in consumer prices from this July through September compared with the same three-month period last year. Benefit payments have been tied to inflation since 1975.

In the past two years, retirees have benefited from the timeframe the government uses to set the adjustment for the next year. The 2006 increase picked up a jump in energy prices from that occurred in September 2005, reflecting the impact of Hurricane Katrina on production at Gulf Coast refineries.

This year, however, retirees may be penalized because energy costs, which moderated over the summer, are expected to pick up again during the final three months. In addition, food prices and medical prices have climbed rapidly.

But those gains have been offset somewhat by moderation in categories of goods that older people to buy less; they include computers, consumer electronics and clothing.

"Retirees are going to feel a disconnect this year between the COLA increase and the reality of the inflation they face," said Mark Zandi, chief economist at Moody's Economy.com. "If this calculation were done in another three months, it would be measurably higher."

Advocates for the elderly said the small increase highlighted the need to revamp the cost-of-living adjustment to better reflect prices paid by retired people, including the money they spend on health care.

The Senior Citizens League said a study it has done showed that in eight spending areas, people over age 65 have lost 40 percent of their purchasing power since 2000. This finding reflects factors such as big increases for gasoline, home heating oil and prescription drugs.

Shannon Benton, the group's executive director, said it supports legislation that would base the adjustment on a special gauge of the Consumer Price Index, the most closely followed inflation barometer. It would be weighted to better reflect the goods and services that older people are buying.

David Sloane, director of government relations for AARP, which represents people 50 and older, said the cost-of-living adjustment is critical because so many depend on Social Security for most of their retirement income.


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© 2007 The Associated Press

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