Paul Solman: There’s more to add to our earlier correction to Friday’s segment: We have heard from Social Security and it is indeed the case that benefits do NOT go DOWN, as I reported Friday, even if inflation does.
The adjustment for the next year’s benefits, beginning on Jan. 1, is based on the “cost-of-living adjustment” (COLA) of the previous year, measured from October through September, typically measured by the Consumer Price Index (CPI). The August and September data for this year obviously aren’t in yet, but the CPI at the moment looks to be about 3 percent below where it was this time last Oct. 1. That would suggest no rise in Social Security benefits for 2010, but — to repeat — no fall.
There are two more twists to this story. One is technical, and we’re awaiting further word from Social Security before posting it. It involves whether wages, as opposed to the CPI, might be used as the basis for the COLA. More anon.
The other twist is hypothetical. Social security was instituted during the Great Depression, remember, and recipients only began getting benefits after the decline in prices, the “deflation” of that era, was over. But since it is now clear that the yearly benefit adjustment can go to zero, but no lower, imagine the following: Prices drop, as they did in the last quarter of 2008 (13 percent annual rate), but Social Security benefits do not. A massive deflation would then be very advantageous for Social Security recipients, compared to workers whose wages were going down.