Social Security

President Obama plans to press Congress to provide $250 payments to 57 million seniors, veterans, and people with disabilities next year. The effort will likely cost $13 billion, but will help offset the cost-of-living increase that will be absent from Social Security checks at the beginning of 2010.

Cost-of-living increases have been added to Social Security checks for many years. They are added to keep up with the rate of inflation. However, for the first time in three decades, the increase won't be added because of a drop in prices, as well as deflation occurring due to the financial crisis of 2008.

Analysts predicted that the lack of a yearly increase would hit recipients hard because they rely on it to keep up with the elevated Medicare Part B premiums and other cost increases. In September 2009, Democratic lawmakers pushed for legislation that would offer beneficiaries a one-time payment of $150 to offset the costs. However, President Obama wants to up the payment to $250 because he feels it will better reflect the 2 percent increase checks that will be missing.

According to President Obama, since it's possible that the funds to finance this payment will come out of the original $787 billion package (there are still unused funds available), those who would receive the payment may not be eligible to receive money from any other stimulus-related programs in 2010.

If the proposal passes in Congress, the payment will be sent to Social Security beneficiaries, Supplemental Security Income beneficiaries, veterans' benefit recipients, public-employee retirees, railroad retirees, and disability beneficiaries.

Seniors receiving their social security checks in January 2010 may be disappointed to find that for the first time in three decades they won't receive their cost-of-living adjustment.

The 2-3 percent increase usually hits checks in January of each year in order to keep up with inflation; however, this year, the extra money won't be there.

How are Increases Calculated?

Social Security adjustments are based on the consumer price index. This index looks at urban wage earners between the third quarter of the current year and the third quarter of the previous year.

Unfortunately, the 2010 cost-of-living adjustment will be based on the very beginning of the financial crisis, which represents sharp drops in prices and deflation.

Looking at Social Security in 2010

Analysts believe that the lack of an increase next year will hit seniors hard. Even though the checks won't shrink, seniors rely on the annual increase to help them manage other increases surrounding them, including elevated premiums for Medicare Part B.

In 2009, seniors received an atypical 5.8 percent increase due to the spike in oil prices, so getting no increase the following year will be a hard pill to swallow.

The Good News About Social Security

There is a light at the end of the tunnel, however. To balance the lack of a cost-of-living adjustment, Democratic lawmakers introduced legislation that would provide a one-time payment of $150 to Social Security beneficiaries. They hope this will help lessen the blow some. But in reality, the eliminated adjustment is just another sign that the economy still has a long road to recovery ahead, meaning that seniors will have to take steps on their own to cut expenses and budget wisely to stay afloat.

Will you be affected by the lack of a cost-of-living increase? What steps will you have to take to adjust financially?

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