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Social Security Recipients to Get 3.6% Boost, but How Much Will it Help?

October 19, 2011 at 12:00 AM EST
Starting in January, 55 million Social Security recipients will get a 3.6 percent bump in benefits. Margret Warner discusses the cost-of-living adjustment, which is tied to inflation, with Robert Reischauer of the Urban Institute.
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JUDY WOODRUFF: Now, a long-delayed rise in Social Security benefits and its impact on seniors.

Margaret Warner has the story.

MARGARET WARNER: Seniors and the disabled haven’t seen an increase in their Social Security checks for nearly three years.

But, today, the government said 55 million recipients will get a 3.6 percent bump in benefits next January. The cost-of-living adjustment is tied to the rate of inflation. It means the average annual benefit of $14,200 will go up $43 a month, or $516 a year. The changes affect one in five Americans.

For more, we turn to Robert Reischauer, president of the Urban Institute. He serves as one of the public trustees of the Social Security and Medicare Trust Fund.

And welcome back to the program.

ROBERT REISCHAUER, Urban Institute: Thank you.

MARGARET WARNER: So, first explain this hot-button issue. Why did seniors get no increase since January ’09, when, in fact, we have seen inflation since then?

ROBERT REISCHAUER: Well, what happened is, they got a very large increase in January of ’09 because energy prices went up very rapidly in 2008, when we calculate this adjustment.

No sooner had they gone up than they fell, and the overall price level then fell down below what it was in 2008. And until the price level gets back up above the point at which the previous adjustment was made, there are no COLAs. And so we went two years without COLAs, but, in effect, if we had been able to adjust our benefits monthly on exactly what inflation was doing, beneficiaries were a little better off than they would have been because of this big bump up that they got.

MARGARET WARNER: Now, explain to us, what percentage of seniors really depend on Social Security for the basics of life? And for them, how significant a boost is this?

ROBERT REISCHAUER: Well about two-thirds of recipient units rely on Social Security for over half of their income. And about 35 percent rely on it for 90 percent or more for their income, so a very significant fraction of elderly in America are critically dependent on their Social Security checks.

And while this might not seem like a huge amount of money, $500 a year, it is very important to them, especially when they’re facing rising costs from maybe medical expenditures and other things that they consume more of than the rest of us.

MARGARET WARNER: Well, now that raises a point. The advocacy groups for the elderly are saying it’s nice, but 3.6 percent doesn’t match the rate of inflation in health care costs to them, which has been more than double-digit, I mean, double…

ROBERT REISCHAUER: Yes, that’s probably true, but they consume, obviously, a lot more than health care alone.

But there have been some experimental indexes trying to ferret out what are the price increases for the products that the elderly face. And, by and large, I think that evidence shows that they do face a slightly higher rate of inflation than the average American worker.

MARGARET WARNER: So you mean there are certain categories that they may not see as much inflation, they don’t use as much of.

ROBERT REISCHAUER: They might not use as much gasoline, energy, for example.

MARGARET WARNER: New clothes.

ROBERT REISCHAUER: Their rents might be a little less.

But, certainly, we know that they spend a lot more of their income on health care.

MARGARET WARNER: So, in general, the economic downturn we have seen in the last couple of years, how has it affected older Americans or retirees vs. — or how differently than working Americans?

ROBERT REISCHAUER: Well, the interesting fact is that family income among families with 65-year-old household heads has gone up a little under 4 percent, 3.9 percent since 2007, when we had the peak of economic activity.

On the other hand, the median income — this is all adjusted for inflation — the median income of under 65-year-old families has gone down by about 6 percent. And, of course, the answer to that is rather simple. It’s that the elderly are less affected by job loss.

MARGARET WARNER: Even though, say, their retirement accounts or savings accounts aren’t kicking up as much income?

ROBERT REISCHAUER: They aren’t. But they don’t receive a huge amount of their income from assets, only about 11 percent overall. Many have pensions from government or private sector kicking in, and those haven’t been reduced significantly.

MARGARET WARNER: Looking even more broadly, if this is going to affect one in five Americans, because this increase also affects disabled and other people who are getting payments, will it have a wider effect on the economy in terms of consumer spending?

ROBERT REISCHAUER: Well, certainly it will. It will help.

We’re going to beef up the checking accounts, so to speak, of a significant portion of the American population at a time when we have a need to stimulate demand. So, in a macroeconomic sense, this is good news.

MARGARET WARNER: And, finally, how sure a thing is this? I mean, is this for sure this will happen in January or could it come up on the chopping block in these deficit talks?

ROBERT REISCHAUER: There’s no chance of that at all.

This is baked in the cake at this point. And one thing we should mention, though, is that a certain fraction, about a third of it for many seniors will be absorbed by rises in their Medicare Part B premiums, which have also not risen for last two years because there has been no COLA. So, it’s not all money in the bank, so to speak.

MARGARET WARNER: So, briefly, so they are expecting an increase in their Medicare premium, which is deducted?

ROBERT REISCHAUER: Yes, they will. It has been frozen at about $96 a month, and it will go up to close to $110.

MARGARET WARNER: Bob Reischauer of the Urban Institute, thank you so much.

ROBERT REISCHAUER: My pleasure.