Don't spend it all in one place, Grandma

Earlier today, the Social Security Administration announced that the 2008 cost of living increase for retired workers will be 2.3 percent. Let's hope that this winter is even milder than the last one so seniors don't have to choose between putting food on the table and heating the house - both grocery bills and energy costs have been soaring lately.

The good news is that Medicare premiums will rise by only $2.50 per month, so your typical social security recipient will see the vast majority of the $24 increase starting in just a couple months. Recall that last year, the increase in Medicare costs ate up about three-fourths of the Social Security increase.

This report from CNN/Money provides a few more details:

The 2.3 percent increase is the smallest since a 2.1 percent rise in 2004. It compares to an increase of 3.3 percent last year and a jump of 4.1 percent in 2006, which had been the biggest advance in 15 years.

The COLA is based on the change in consumer prices from the July-September quarter of this year compared to the same period last year. Benefit payments have been tied to inflation since 1975.

The big jump for 2006 occurred because energy prices had soared in September of 2005, reflecting the impact of Hurricane Katrina. This year, however, energy prices have been coming down in recent months after having spiked in the spring.

With oil prices surging this week to highs above $88 per barrel, analysts believe that consumers will get socked with higher gasoline prices and home heating oil costs in coming months, but those gains will come too late to influence the new cost-of-living adjustment.

In addition, food prices and medical prices have been rising rapidly this year. But those gains have been offset somewhat by a moderation in categories that the elderly tend to buy less of such as computers, consumer electronics and clothing.

"Social Security recipients are going to feel like they are getting squeezed," said Mark Zandi, chief economist at Moody's Economy.com. "For most households out buying gasoline and a loaf of bread, it feels like inflation is high."

Some time ago over in the U.K., one of the major newspapers ran a series of stories about rising consumer prices in which they calculated separate inflation rates for different groups of people - students, families, seniors, etc.

This was discussed in Inflation in the U.K. earlier this year.

For retirees, who spend much more on rising heating bills than on lower priced iPods and computers, their spending mix worked out to about 9 percent while the national inflation rate was less than half of that.

No such calculation has been performed yet in the U.S. - isn't it about time that someone in the mainstream media took on this task?