Come January 2010, seniors may do a double take after seeing their Social Security checks. The two to three percentage-point increase in benefits they usually get each year won t be there.

That s because, for the first time in three decades, there likely won t be a cost of living adjustment (COLA). People notice when their checks don t change, says Bruce Meyer, a professor at the University of Chicago s Harris School of Public Policy.

CPI-W between the third quarter (July-September) of the previous year and the third quarter of the current year. The 2010 COLA will be based on a period marked by sharp drops in prices and deflation.

Democratic lawmakers are trying to lessen the perceived pain. Rep. Carolyn McCarthy (D., N.Y.) introduced legislation last week that would provide a one-time $150 payment for Social Security beneficiaries to compensate for the lack of an adjustment.

Still, anxious seniors should keep in mind that they will actually come out ahead of inflation. In a sense, older people are going to do fine because the cost of living is down and they re not going to have their benefits cut, says John Laitner, the director of the Retirement Research Center at the University of Michigan.

Here is the good and bad about a flat COLA.

Reasons to Fret

Next COLA increase will be in 2012: Not only won t seniors receive an adjustment for 2010, but the Social Security and Medicare Trustees project no cost of living adjustment for 2011 and only a modest 1.4% increase in 2012. That means seniors won t see higher payments until 2012. Of course, the Trustees report is a forecast, and next year s report, which will take into account new data, could be revised.

Rising health-care costs: Older people get hit more by rising health-care costs than younger people do, says Pamela Herd, an associate professor of public affairs and sociology at the University of Wisconsin. That s because seniors are disproportionate users of the health-care system and pay about 20% higher out-of-pocket health care costs than does the rest of the population. So while inflation hasn t really been a concern, health-care costs are increasingly eating into seniors Social Security checks.

Higher Medicare premiums for some: Medicare Part B premiums have increased almost every year to keep pace with the growth in Part B expenditures. (Part B insurance helps pay for some services not covered by Part A, generally on an outpatient basis.)

For most of the 42 million Part B beneficiaries, the amount of the monthly Social Security COLA each year has been more than enough to offset the increase in the Part B premium resulting in net increases in benefits, according to the Kaiser Family Foundation. But next year and in 2011, about 8% of Part B beneficiaries will be subject to higher premiums, sums that will be deducted from their Social Security payments. According to Kaiser, they'll pay $104.20 a month in 2010 and $120.20 in 2011, up from $96.40 this year.

On the Upside

The benefit bump: Social Security beneficiaries got an atypically large 5.8% increase in benefits in 2009 the biggest in more than 25 years. That outsize increase was primarily because of 2008 s spike in oil prices, says Laitner. But since then the CPI increase was lost as energy prices fell. It was an excessively high COLA that raised the purchasing power of seniors benefits, actually putting them ahead where they should be, says Andrew Biggs, a resident scholar at the American Enterprise Institute, a nonprofit public policy group.

Seniors are better off than most: While the poverty rate increased from 2007 to 2008 and median household income fell, both indicators remained statistically unchanged for people 65 and older, according to last week s Census report. So the official data say that group is doing quite well and all those numbers predated the 5.8% increase in Social Security benefits this year, says Meyer of the University of Chicago.