Fixed Income Fix

If you're a senior citizen on a Social Security fixed income, you're about to get a whole load of bad news this week when the federal government is set to announce that you will not get a cost of living increase for the third straight year.

On Friday morning the government will release the 2011 cost-of-living adjustment, or COLA, in conjunction with the Consumer Price Index for September.

Usually the COLA is based on changes in the CPI from the third quarter of one year to the third quarter of the next, and that would mean an increase of about 1.5 percent – $20 to $25 a month for the average recipient.

But because there was no increase in 2010 as the result of a drop in the CPI after a big run-up in 2008, federal law requires that the 2011 COLA be based on the third quarter of 2008.

And that means no increase — and even tighter budgets — for a cross-section of retirees I spoke with last week at senior centers across North Jersey, including Stephen and Ginny Liszewski, an East Rutherford couple who rely on monthly Social Security checks for themselves and for treats for their 17 grandchildren and two great-grandchildren.

"The bulk of our income comes from the checks," Liszewski, 85, said after a morning of dancing at the Saddle Brook senior citizen center. A benefits freeze "puts a dent in our ability to function. We buy a little less, don't eat out as much, don't travel as much."

Social Security benefits are based on up to 35 years of a worker's earnings. For some, that can mean as much as $2,346 a month (assuming they start collecting at full retirement age).

But the average retiree gets just $1,153 ($1,876 for couples), so a 1.5 percent increase would mean an extra $17 ($28 for couples).

That won't be coming, but there is a bright spot for most Social Security recipients.

Thanks to a "hold harmless" clause in federal law, increases in Medicare rates are prohibited if an increase would reduce the net Social Security check. As a result, about 93 percent of recipients will also see rates frozen for Part B, which covers doctors' services, outpatient care and home health services, at $96.40 a month for the second consecutive year.

That will save most Medicare B participants about $14 a month.

However, those who enrolled in Medicare B this year will pay $110.50. And that could go higher when 2011 rates are announced next month.

Property taxes are not being frozen. Energy costs aren't frozen, but those on Social Security are going to find it even more difficult to cover their costs because their checks aren't increasing.