Annual Social Security COLA will be on If and When Basis
Some 62 million people, including seniors, disabled veterans, and retired federal workers will have to wait a little longer to learn what their annual cost of living adjustment (COLA) will be.
When they do, they will likely be disappointed. Preliminary figures indicate the COLA will likely be only around 1.5 percent, the smallest increase in years.
The actual figure is announced in mid-October following the September completion of the Labor Department’s final inflation report. Early this month however, it was learned that because of the Oct. 1 government shutdown, there would not be an inflation report.
Last year, recipients received a 1.7 percent increase. For the two prior years, there was no increase because inflation was too low. Recent increases are far below the average, which since 1975 have been in the 4.1 percent range.
The COLA, according to the Social Security Administration, was enacted by Congress in 1972. It was to ensure that the purchasing power of social security and other affected federal recipients was not eroded by inflation. The adjustment is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Initially it was used only when the CPI-W was more than three percent. The 3-percent trigger was eliminated by Congress in the mid 1980?s.
In normal years, the COLA adjustment is included on the first checks of the new year. That may not happen this year, a fact that has seniors on edge. Hopefully this will be a simple problem to resolve once the government gets back to work.
There may be changes on the horizon
As a means of saving money, Congress is considering changing how the COLA is derived. Some want to use a different method to calculate the increases. Instead of CPI-W, some want to use what is known as chained-CPI, which would result in even smaller increases.
According to the AARP, (American Association of Retired Persons), chained CPI measures the cost of inflation with a twist. AARP says:
?It assumes that when prices for one thing go up, people sometimes settle for cheaper substitutes. For example if beef prices go up, they’ll buy more chicken and less beef.)?
The result is a smaller increase.
AARP says 1 in 6 older Americans live in poverty. While the difference in how the COLA is figured is relatively small, it could make a huge difference to some.
AARP says the chained-CPI is about .3 percentage point below the current method, which is about $3 less for every $1,000. They use the example of a typical social security check of $1,250 last year. The increase, at 1.7 percent was resulted in a check for $1,271.25. With chained CPI, it would have been only $1,271.25, a difference of $3.75 per month. If the COLA was the same, the difference increases to $7.61 per month or $91.32 per year.
Chained-CPI is being billed as a cost-savings measure. It has become a political football, carried by both President Barack Obama and the Congress. Many were furious when Obama mentioned the chained-CPI in debt negotiations with House Republicans last spring. Democrats are opposed to chained-CPI. Even some Republicans have opposed it since Obama included it in his budget.
More help may be needed beyond inflation
The problem is not just inflation, but the ever-increasing cost of healthcare, food, insurance, utilities, etc. There is no provision for those increases, which make living on a fixed income more and more difficult for an ever-increasing number of people.
Edited/Published by: SB
