Social Security recipients to get 2.3 percent adjustment

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 and medical care this year have been offset to a certain extent by moderation in categories of goods that older people tend to buy less of, such as computers and consumer electronics.

"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."

The new cost-of-living figure announced Wednesday by the Social Security Administration is the smallest increase since a 2.1 percent boost in 2004.

It is a full percentage point lower than the 3.3 percent adjustment for 2007. In 2006, the COLA increase was 4.1 percent, the largest in 15 years.

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.

"Just under one in three older Americans count on Social Security for nearly all of their income, and almost two-thirds of beneficiaries count on Social Security for at least half of their income," he said.

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.