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Golden Years look dark as lower inflation eats into Social Security

Milanee Kapadia

Most Americans are probably rejoicing that the cost of living barely rose in September. According to the Labor Department, the Consumer Price Index climbed 1.7 percent - an increase of a tenth of a percent from the month before. But for senior citizens that’s not good news. Annual increases in Social Security are made every year based on changes in a component of the index known as CPI-W. Analysts predict the increase will range from 1.6% to 1.8%, based on the average third-quarter readings.

According to the Social Security Administration, in 2014 more than 59 million Americans will receive nearly $863 billion in Social Security benefits. The lower the inflation, the lower the SSA pays out. Today’s report suggests the estimated monthly payment for retired workers receiving benefits will likely be around 1.7% in 2015. What that means, according to Yahoo Finance Editor-in-Chief Aaron Task is that it will continue to be a miserable existence for the over-65 set. He points out “this would be the third year in a row of sub-2 percent increases. Lots of seniors are saying: Look, I can’t get by on social security, and the government is like: Look, this is how the numbers are set and there’s no inflation so, sorry here’s your paltry little increase.”

If you look closely at the Labor Department report, energy costs fell 0.7 percent from August and will probably fall more this month. According to AAA, the average cost of a gallon of regular gasoline fell to $3.09 Tuesday - the lowest since 2011. But Task says seniors don’t drive around that much so the low cost of fuel doesn’t help them much. although it will make a dent in their heating bills this winter.

The items that seniors do spend their Social Security earnings on are food and healthcare. Today’s CPI report showed food prices rose 0.3 percent, along with an increase in costs for shelter and medical items. Task finds an inherent conflict in the fact that the very same government that pays out the checks to seniors also sets the CPI. “They have an incentive to depress what the actual reported inflation number is because the higher that number the higher the Social Security payments. They’ve twisted these numbers around which is why the average person says, "Wow, inflation is a lot higher that what the government is reporting because you see it at the grocery store, too."

An added whammy is that seniors aren’t earning as much on safe investments such as U.S. bonds. The 10-year treasury (^TNX) is currently yielding about 2 percent, making the fixed-income returns that seniors depend on minimal. Task is concerned that the situation will lead to them seeking higher returns in riskier investments such as stocks. Or they end up working at low-paying jobs to make ends meet. The one silver lining in today’s CPI report - airfares dropped, perhaps allowing retirees to travel during their golden years. That is, if they can afford it.

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