Does Social Security keep pace with inflation?

Date posted: January 14, 2011

The government recently said Social Security recipients would not receive a cost of living adjustment to keep up with higher prices. How bad does this make it for people who rely on Social Security to pay their bills? N.C. State University economist Mike Walden weighs in.

“Before I answer that question, a couple of points: First of all, Social Security when it was invented was never meant to be the sole source of retirement money for retired folks, so hopefully most people have some kind of supplement.

“Secondly Social Security, the COLA, is not going up this year because the cost of living in August — when they take the reading — was still less than the cost of living two years ago. I think we will have a COLA adjustment next year.

“Social Security … didn’t always have a COLA adjustment. In fact, that only came in in the 1970s, but since then it has been an issue for retired people. And your question, I think, is apropos.

“The issue here is whether the COLA that is used represents changes in the cost of living for folks who retire, and studies show that it doesn’t — the main reason being that retired folks obviously have more of their expenses geared toward medical care. That makes sense as you get near the end of your life. Medical expenses are higher. And the problem that has created … is that medical expenses (for) most people know have been going up faster than other things in our economy.

“So studies show in the last 20 years, for example, people who are on Social Security and even if they have had a cost of living adjustment, they have fallen shy of keeping up with the cost of living by about 20 percent (of) their cost of living. And that has given risen to a plan to have a separate cost of living adjustment just for retired folks that would be geared exactly to their expenses. That has been proposed in Congress; thus far no movement on it.”

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