Retirees Face 2nd Year with No Social Security Increase
Official word won't come for two more months, but it looks like Social Security payouts in 2011 will not get a cost-of-living adjustment (COLA). That will make it two straight years that Social Security benefits won't get an inflation bump, the first time that's happened since COLAs were formally added to Social Security in 1975.
The culprit here is that there likely will be no inflation from the third quarter of 2009 to Q3 2010; the 12-month stretch used to determine Social Security COLA adjustments. While general inflation has been non-existent and the bigger concern is deflation, it's not as if retirees' cost of living has held steady. For example, the price level of U.S. medical care services has risen 6 percent since the end of 2008 (the last time there was a Social Security COLA).
A $250 Band-Aid
In anticipation of the October announcement that payments will not rise -- and just in time for mid-term election campaigning -- a new bill was introduced in the House last week that would give all Social Security recipients a one-time $250 payout next year. What retirees, and all savers, really need is a shift in Federal Reserve policy that would let savings rates rise. Since 2008 the downward trajectory of six-month CD rates has been rivaled only by Lindsay Lohan's career prospects:
Source: Federal Reserve Bank of St. Louis
Yet Federal Reserve Chairman Ben Bernanke has told us that rates will remain low for an "extended period," a position that is no longer garnering universal support. Thomas Hoenig, president of the Kansas City Fed recently recently told CBS News it's time for the central bank to stop penalizing savers and begin to push the Federal Funds rate off the floor.
Where to Find More Income
So far Bernanke hasn't given any indication he's ready to give savers a break. And a $250 bonus Social Security payout -- assuming it is approved by Congress -- isn't likely to offset most retirees' income losses from lower rates. But that doesn't mean yield-starved savers and investors should just wait for general rates to rise. There are ways to earn more yield today, if you're willing to hunt around. MoneyWatch's Allan Roth recently pointed out that Alliant Credit Union is paying 1.5 percent on deposits. If you have $50,000 sitting in a bank account earning zippo that's an extra $750 in income you're not collecting. And there are plenty more places to find higher income payouts today, including high-yield savings accounts and dividend stocks. You just need to be willing to put in some elbow grease and move your money into the few places that offer a (relatively) decent yield.
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