Earlier this week, it was announced that there would be no cost of living increase for 2010 for people receiving Social Security payments. This means that the 57 million people receiving benefits that were expecting their small, but important, annual pay raise this year won’t be getting that increase. The cost of living adjustment that is normally associated with Social Security was instituted in 1975 and 2010 will be the first year since then without a COLA increase.

The announcement has been met with a lot of concerns from seniors who depend on social security as a primary source of income. President Obama has proposed the idea of a special one-time payment to help seniors, a proposal that is not yet guaranteed to pass and one that adds to the confusion around the issue. There are clear answers to some questions though–hopefully these are a good start.

1. Why is There No COLA Increase in 2010? There are a few reasons. First, the cost of living this year has not seen a substantial increase. Last year, with gas prices over $4.00 a gallon, seniors received a 5.7% COLA increase. The elimination of the increase this year is partially because it shouldn’t cost seniors significantly more to live this year than it did last year. Of course many would disagree with that statement, but it’s a factor. In addition, the social security fund is not an endless pool of money and rising unemployment means that receipts into the fund are down this year. Keeping payments stable should help to preserve the fund for future years.

2. What are the Details About the $250 Bonus? This money is designed to be emergency recovery assistance to help seniors, veterans, and disabled Americans. This represents an amount equal to about 2% of the social security benefits received by the average American. It seems to conflict with the reasoning for not providing a COLA increase, but there are a few differences between this money and a COLA increase. First, this emergency money will be received, if it’s approved, in a lump sum during the first half of the year. The money will be designed to meet the short term cash needs that have accumulated as a result of the recession instead of addressing ongoing living expenses. Second, because of the nature of the payment, it will not change the tax limits for employers and employees paying into the Social Security fund during 2010.

3. How Will the $250 Payment be Paid for? President Obama has made it clear that this money will not be paid out of the general Social Security Fund. It will be paid directly out of the government’s wallet, which means it will be printed and added to the budget deficit that is already expected to exceed $1.4 billion in 2010. The priority is that this $13 billion does not affect the ability to pay Social Security benefits in any way in the future.

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