My Social Security benefits are increasing? Oh, no!
I got some bad news the other day.
A letter arrived informing me my Social Security benefit payments would increase 3.6% in 2012.
Although it wasn’t the most unwelcome communication I’ve ever received from Uncle Sam (my draft notice in 1968 comes to mind), it nevertheless produced a sickening feeling -- the same feeling I’d had when the value of my tiny portfolio of U.S. Treasury notes increased earlier this year.
Just as a rise in Treasury prices signals a decline in interest rates, an increase in Social Security benefits signals a rise in inflation.
Falling interest rates and escalating prices are the financial double-whammy I fear most as a senior.
Under federal law, Social Security’s cost-of-living adjustment is calculated annually by comparing the Consumer Price Index for the third quarter with the CPI at the time a cost-of-living adjustment was last triggered.
If there’s been at least a 0.1% increase, the benefit payment goes up the following year.
The last COLA increase, in 2009, was based on the CPI level in the third quarter of 2008.
Because there was no adjustment for 2010 or 2011, the bulk of the current 3.6% increase came in the last 12 months.
My monthly checks (actually, I have direct deposit), while more than chump change, are only a fraction of my retirement earnings.
Most comes from investments in government-insured CDs, with fixed (and extremely low) yields and no protection against inflation.
And that’s the problem.
I’ve no doubt the Federal Reserve's campaign to flood the market with money by buying hundreds of billions of dollars of Treasury bonds has been the primary contributor to inflation in the past year.
I don’t buy Ben Bernanke’s repeated assertions that rising prices are "transitory," that true inflation is only measured by excluding food and energy from the CPI and that, in any event, the Fed bears little or no responsibility for higher living costs.
But casting blame on the central bank gets me nowhere. We're stuck with Bernanke for another two years, no matter what.
The real question is whether I can find a decent government-backed investment to stave off the inflation monster.
In the past, I’ve come up empty-handed in my search for a magic bullet that will protect both my income and my assets from erosion at the hands of higher prices.
But, given the recent COLA increase, it’s time to take another look.
I’ll be reporting back with my findings.