The Social Security Administration just released the fact there will be no increase in benefits next year — the second year in a row without an increase for more than 58 million retirees and disabled Americans. The announcement marks only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.
The media is spinning this story as if this is a great injustice to seniors on social security. Very few stories explain that the reason there is no increase in social security next year is because we’ve not had inflation. These are called COLA’s (Cost of Living Adjustments) for a reason. The intent of a COLA increase is to keep the purchasing power level.
Consider this, if we slide into deflation, we will need to be actually cutting social security checks. That would be because the cost of living was going down.
Many people don’t realize there is no difference in a 5% COLA increase with 5% inflation, a 0% increase with 0% inflation, or a 2% cut with 2% deflation. Purchasing power remains exactly the same in all three scenarios.
Unfortunately, given these three scenarios, most people would feel they are getting something more with a 5% raise and 5% inflation and most would be outraged if their checks were cut 2% with 2% deflation. The key is purchasing power and most people just don’t understand the math.