Inflation vs. Deflation

We have been discussing what I call the most important choice that planners must make in fashioning their clients' portfolios: Will we have inflation or deflation? Over what term? Now comes a bit of evidence from the Social Security Administration on what environment presently prevails. For the first time in 50 years, no cost of living adjustment for seniors. Why? Read on.

From the Associated Press:

There will be no cost of living increase for more than 50 million Social Security recipients next year, the first year without a raise since automatic adjustments were adopted in 1975, the government announced Thursday.

Blame falling consumer prices. By law, cost of living adjustments are pegged to inflation, which is negative this year because of lower energy costs. Social Security payments, however, cannot go down.

But if Social Security payments aren't rising and rates that savers receive are paltry, what to do? Provide artificial increase through "one-time" stimulus, of course.

Thursday's announcement comes a day after President Barack Obama called for a second round of $250 stimulus payments for seniors, veterans, retired railroad workers and people with disabilities.

The payments would match the ones issued to seniors earlier this year as part of the government's economic recovery package. The payments would be equal to about a 2 percent increase for the average Social Security recipient.

Problem solved!