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Estimated 2012 Social Security Cost-of-Living Adjustment: 3.5%

By Ben Steverman | November 2, 2011
  • What's Happening

    What Happened

    Social Security recipients may receive a 3.5 percent cost-of-living adjustment, or COLA, in 2012. That would be the first increase in benefits in two years. The COLA is determined each year by the increase, if any, in the third-quarter consumer price index over the index level a year earlier. Final calculations can only be made when September data is released on October 19, so the 3.5 percent estimate is based on August data, released on September 15, and on July data.


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  • Why It Matters

    Why it Matters

    "Social Security is one of the few things [people] have in retirement that is guaranteed to keep up with the cost of living," says Virginia Reno of the National Academy of Social Insurance. Cash, private pensions and most bonds typically lose buying power to inflation, while stocks can provide uneven results. The COLA is based on the consumer price index (CPI), even though data suggest that many costs for seniors, especially health-care costs, are rising faster than the CPI. Two federal debt commissions proposed switching to a slower-rising "chained" CPI, which would reduce Social Security benefits by an estimated $112 billion over ten years.


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  • What It Means for Your Portfolio

    What it Means for Your Portfolio

    The majority of seniors get more than half their income from Social Security, Reno says, so the COLA is crucial in helping them keep up with rising prices. This means retirees need to look for other ways to protect portfolios and income from inflation. Low-risk investments, however, yield extremely little today. A sharp focus on fees is a basic way to try and eke more return out of a portfolio. One form of protection against inflation is Treasury Inflation-Protected Securities or Series I Savings Bonds. These provide minute returns but are guaranteed by the U.S. government to keep up with inflation.


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