Will Your Social Security Check Be Too Low?

Whether you're talking bus tickets or bags of groceries, prices for goods purchased on a daily basis are staying about the same -- or even dropping.

As expected, the monthly Consumer Price Index, reported by the government this morning was zero for the month of July. In comparison to a year ago, the CPI dropped 2.1 percent.

For most consumers, that's good news, but for the some 30 million senior citizens who receive Social Security benefits, this trend comes with a big downside: It means that their Social Security checks, which are pegged to the CPI, likely won't increase next year.

It's especially a problem for senior citizens such as Sylvia Schneider, 80, of New York City, who says her monthly Social Security check is her primary form of income. The average monthly benefit is just over $1,050 this year, according to the Social Security Administration.

"The government has a right not to increase it. I understand that," Schneider said. But, she added, she's still worried about making ends meet.

Escalating health care costs are sure to keep making times tight for the country's older population, said Cristina Martin Firvida, director of economic security for AARP.

"It is no question that it will be a hardship for individuals who are going to continue to see an increase in their out-of-pocket health care expenses to not have a cost-of-living increase in Social Security," Firvida said.

Last year, when food and energy costs were squeezing wallets across the country, seniors saw a jump in benefits. Social Security Administration increased payments by 5.8 percent.

Not so this year. In April, the Congressional Budget Office predicted that by September, price changes would be small enough to head off any increase in Social Security benefits.

Government reports on the CPI since then, including today's, seem to indicate that that forecast will likely soon become reality, with all of this year's monthly increases falling below 1 percent.

If the monthly increases stay low for the next three months, experts say, then Social Security benefits definitely won't rise in 2010 -- an unprecedented event.

The official benefits announcement will be made in October.

A Bad Match for the Elderly

While the notion of the government's keeping Social Security payments static may bring some cheer to those worried that the system is headed for bankruptcy, it's of little comfort for seniors who need the money now.

The problem, critics say, is that the metric the Social Security Administration relies on to determine increases in benefits isn't tailored to the elderly.

The Social Security Administration uses a part of the CPI known as the CPI-W, which measures spending patterns of blue-collar workers. Social Security payments have been linked to the CPI-W for more than three decades.

But the spending patterns measured by the CPI-W and the general CPI -- also known as the CPI-U -- don't match those of the elderly, especially in the case of health care: The CPI-W assumes people spend about 5 percent of their income on health care. For many senior citizens, that number is much higher.

"The basket of goods that are used in the CPI are not represented by the basket of goods consumed by the elderly. That's the big issue," said Praveen K. Kopalle, an associate professor of business administration at the Tuck School of Business at Dartmouth College.

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