THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING
SCOTT BURNS

Retirees may not have it easy, but plenty of workers might envy their '09 raise

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August 6, 2008

Senior citizens can look forward to a major increase in Social Security benefits next year. Unless there is a sudden rush of deflation in the current quarter, the increase will be the largest in 25 years.

Last year, it was a very pinched 2.3 percent. There hasn't been an increase over 5 percent since 1990. Just how big will the increase be? Try 6 percent.

To be more precise, it will be 5.7 percent if the summer holds no inflation. The benefit increase will be 6.1 percent if inflation runs at the 0.2 percent "core" rate for the same period. And it will be more if inflation is higher than the core rate. The last time there was a larger increase was in 1982, at 7.4 percent.

The 6 percent figure was not found in my crystal ball. Anyone can make a good estimate of future benefit increases simply by reading how they are calculated.

The Social Security Administration uses Consumer Price Index for Urban Wage Earners and Clerical Workers as its inflation benchmark. It averages the CPI-W index figures for the third quarter of the previous year and divides that figure into the corresponding figure for the current year. January 2009 will be the first month retirees see the increase.

Last year, the index declined slightly, from 203.906 in June to 203.700, 203.199, and 203.889 for July, August, and September. That's an average of 203.596 for the quarter.

By June of this year the index had risen to 215.223. So if the index is unchanged for July, August, and September, the increase will be 5.7 percent. Have the June index rise by 0.002 each month for core inflation, and the benefit increase will be 6.1 percent. If the index figure rises more over these three months, the benefit increase will exceed 6.1 percent.

Could the increase be significantly smaller? Sure. But it would require declining prices.

Will retirees be happy with the increase? I doubt it. My mail regularly contains letters from retirees complaining that those in Washington must be smoking something (or at least cooking the books) to come up with their notion of inflation. Whatever the facts, the conclusion is the same: The CPI doesn't measure the inflation retirees face. For the record, I think they're right. Medical expenses loom large. But if you are one of those seniors, I have a suggestion: Bite your tongue.

The workers who pay the bills - including Social Security and Medicare benefits - are doing poorly this year. Wages appear to be rising at about a 3 percent annual rate. That's about half the inflation rate. Medical insurance costs continue to rise. It's not a pretty picture.

So far this century, retirees are doing as well as workers, perhaps better. Retirees have seen their benefits rise slightly more than wages have risen since 2000. This may seem OK to some retirees, but it's not. Workers are working. They are supposed to be rewarded for rising productivity. It's beginning to look like the best way to get a good raise is to retire.

Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.

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