An Introduction:The goal of SS is to provide a FIXED retirement income. In theory a person SS check should never have more BUYING POWER than any prior year. This is an important concept. While the number on the check may go up (nominal terms) the buying power will remain the same. In essence if you check goes up 5% it is because prices went up 5% and the buying power of your check is exactly the same.
You can never get ahead with SS check. If a person is having trouble making ends meet in year 1 of retirment the check getting "bigger" won't help because it simply reflects higher prices. Imagine if SS check doubled but price of everything also doubled. You would be no richer or poorer than before the double.
How SS COLA is calculatedSo why did SS checks not rise in 2009/2010? Did Congress "do something"? Was some bill passed to slam seniors? Was it cut from the budget? Is it because Obama is a socialist who hates seniors? No. None of those are true. Since 1976 SS check increases are done AUTOMATICALLY based on the change in CPI-W. It requires no action from Congress or the President. It can't be stopped, or altered without new legislation. CPI-W is an index that reflects inflation. The change in CPI-W between any two points reflects the change in prices between the same two points. As an example CPI-W has increased 31% since 2000 so it is indicating prices have increased 31% since 2000.
Historical CPI-W
http://www.ssa.gov/oact/STATS/cpiw.htmlAverage CPI-W by qtr
http://www.ssa.gov/oact/STATS/avgcpi.htmlSpecifically COLA is based on the difference in 3rd quarter CPI-W compared to the prior year 3rd quarter CPI-W.
CPI-W by years (3rd quarter average)
2006 - 199.067
2007 - 203.596
2008 - 215.495
2009 - 211.001
2010 - 214.136
Now lets look at 2007 vs 2006. 203.596 / 199.067 = 2.3% increase. Prices rose 2.3% in 2007.
Lets also look at 2008 vs 2007. 215.495 / 203.596 = 5.8% increase. Prices rose 5.8% in 2008.
Here is SS historical COLA changes:
http://www.ssa.gov/oact/COLA/colaseries.html2007 = 2.3%
2008 = 5.8%
Notice anything interesting. SS check increase by the difference between current year CPI-W and prior year CPI-W
So why was there no COLA increase in 2009?Well CPI-W declined in 2009. Prices were actually cheaper in 2009 relative to 2008. Technically in an accurate system SS checks would be reduced 2.1%. They didn't. The legislation in 1976 "locks in" SS checks. They never decrease in falling CPI-W.
What about 2010 prices went up? Everyone knows thatSTATISTICAL it is a "scam". You can see CPI-W increase in 2010 but COLA was still 0. Why?
Very good question. While prices DID rise in 2010 vs 2009, they aren't higher than 2008.
Remember checks were not reduced in 2008 when prices fell. In essence SS checks reflect the CPI-W of 2008 (215.495). So While CPI-W increased from 211 to 214.136 in 2010 it still isn't higher than the CPI-W "included" in current checks.
A side note it is important to realize that the government isn't saying there was no inflation in 2010 (common claim on DU). Specifically the government is saying THERE WAS PRICE INFLATION IN 2010 however prices are still not higher than peak of 2008.
So what is in store for 2011.Well it is simple. Three important facts:
1) SS checks reflect a CPI-W of 215.495.
2) When CPI-W is GREATER than 215.495 there will be a COLA increase.
3) The increase in COLA will be the difference between current CPI-W and CPI-W reflected in checks.
Two examples:
Say CPI-W for Q3 2011 is 217.00 what would the COLA increase this year be?
217.00 / 215.495 = 0.7% gain. COLA would be 0.7% increase.
Say CPI-W for Q3 2011 is 220.00 what would the COLA increase this year be?
220.00 / 215.495 = 4.3% gain. COLA would be 4.3% increase.
It is important to note that a larger SS check doesn't mean seniors are better off. SS is a FIXED income system. Buying power NEVER (no matter how long you live) increase. As a historical example SS check in nominal terms (the number amount on check) have increased 31.4% compared to year 2000 however they still only have the same buying power. If your SS check doubles (and eventually given enough time it will) you will still only have the same buying power as your very first check.
![](http://www.ssa.gov/oact/STATS/cpiw.gif)