Today’s announcement of a 2.1 percent cost of living increase (COLA) is good news for the more than 46 million Social Security beneficiaries. Social Security is the main source of income for eight out of ten retirees. Even a modest COLA ensures that their Social Security benefits keep pace with inflation.
The COLA has exceeded 3 percent only once in the past ten years, but even a small annual COLA makes a big difference over time. Without the annual COLA for the past ten years, a Social Security recipient’s benefits would be about 25 percent lower today. Low inflation is good for consumers, but without the annual COLA even low inflation would erode the purchasing power of the millions of people who depend on Social Security income.
The weak stock market and low fixed income rates on one hand and rapidly rising health care costs on the other have reinforced the importance of Social Security in the last few years. The COLA insures that people can at least count on Social Security to be a guaranteed and stable pillar of retirement income.
Unfortunately, the $7.90 increase in the monthly Medicare Part B premium, one of the largest increases in the history of the program, will consume over 40 percent of the COLA for the average Social Security beneficiary. Still more of the COLA will be eaten up by the continued escalation of prescription drug costs
Medicare Part B Provider payment increases enacted by Congress over the past few years — which raised Part B spending — are responsible for some of the premium increase. That is why AARP has made clear that Congress should not agree to any further provider givebacks prior to final action on a Medicare prescription drug benefit, and why action on a prescription drug bill — this year — is critical.