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A. A COLA is an automatic adjustment in benefits that occurs annually. The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next. If there is no increase, there is no COLA.
CoverageThe CPI represents changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, and life insurance) are not included.
The CPI-U includes expenditures by urban wage earners and clerical workers, professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, retirees and others not in the labor force. The CPI-W includes only expenditures by those in hourly wage earning or clerical jobs.
Sources of dataPrices for the goods and services used to calculate the CPI are collected in 87 urban areas throughout the country and from about 23,000 retail and service establishments. Data on rents are collected from about 50,000 landlords or tenants.
The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey.
At other times it has been argued that the CPI overstates the cost of living increases for seniors and unjustifiably have expanded their benefits. I believe Mad Man highlighted just such a time period.
Old-Age, Survivors, and Disability Insurance (OASDI, Social Security) benefits are indexed for inflation to protect beneficiaries from the loss of purchasing power implied by inflation. In the absence of such indexing, the purchasing power of Social Security benefits would be eroded as rising prices raised the cost of living. Recently, the Consumer Price Index used to calculate the Cost-of-Living-Adjustment (COLA) for OASDI benefits has come under increased scrutiny. Some argue that the current index does not accurately reflect the inflation experienced by seniors and that COLAs should be larger. Others argue that the measure of inflation underlying the COLA has technical limitations that cause it to overestimate changes in the cost of living and that COLAs should be smaller. This article discusses some of the issues involved with indexing Social Security benefits for inflation and examines the ramifications of potential changes to COLA calculations.
Has the BLS removed food or energy prices in its official measure of inflation?
No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.
Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U.
Now we hopefully can continue on with a fact based discussion
While the technical issue of what is included in calculating the Social Security COLA and how it is calculated is the subject of this thread and its linked article, I cannot help but think there is also a broader issue in this. And that would be the feeling that the government is supposed to take care of us; it is an entitlement issue. Many seniors are livid about the lack of COLA the past two years - just check the AARP website for confirmation of this. They are moaning about how they are supposed to survive. However, my question to them is how they ended up on Social Security alone (or essentially alone) in the first place. Did they just go through life assuming that they would be fine when it came time to receive Soc. Sec. retirement benefits at age 65 or 66? If so, that was a huge, naive mistake. The amount of the benefits and how they are calculated is completely transparent; it never was a secret. And didn't they know any older people, relatives or aquaintances, who had already retired on Soc. Sec.? This comes down to a question of attitude, of expectations. And the attitude that the government is supposed to guarantee everybody a certain level of comfort makes me sick.
While the technical issue of what is included in calculating the Social Security COLA and how it is calculated is the subject of this thread and its linked article, I cannot help but think there is also a broader issue in this. And that would be the feeling that the government is supposed to take care of us; it is an entitlement issue. Many seniors are livid about the lack of COLA the past two years - just check the AARP website for confirmation of this. They are moaning about how they are supposed to survive. However, my question to them is how they ended up on Social Security alone (or essentially alone) in the first place. Did they just go through life assuming that they would be fine when it came time to receive Soc. Sec. retirement benefits at age 65 or 66? If so, that was a huge, naive mistake. The amount of the benefits and how they are calculated is completely transparent; it never was a secret. And didn't they know any older people, relatives or aquaintances, who had already retired on Soc. Sec.? This comes down to a question of attitude, of expectations. And the attitude that the government is supposed to guarantee everybody a certain level of comfort makes me sick.
You also need to factor in overall obtained education level and financial sophistication and their over all ability to plan ahead. In your lifetime my friend what percentage of the people you knew were thinking 20 years down the road?
I have a friend who is totally unprepared for his current retirement who when I don't want to spend money and he does quotes me from the Shawshank Redemtion. "Either get busy living or get busy dying". Things I am crazy about worrying about when I am 94 which is over 31 years away.
You also need to factor in overall obtained education level and financial sophistication and their over all ability to plan ahead.
I agree with you. My comments barely scratched the surface of a complex subject. Part of my point was to bemoan the inability to plan ahead on the part of many people. And I would agree that my comments are unfair to some people who may have suffered unforseeable tragedies and reversals which have landed them in the position of depending on Soc. Sec. alone. However, I still maintain that in the majority of cases a basic assumption of entitlement is at the root of the problems, and this is what I was lamenting.
I agree with you. My comments barely scratched the surface of a complex subject. Part of my point was to bemoan the inability to plan ahead on the part of many people. And I would agree that my comments are unfair to some people who may have suffered unforseeable tragedies and reversals which have landed them in the position of depending on Soc. Sec. alone. However, I still maintain that in the majority of cases a basic assumption of entitlement is at the root of the problems, and this is what I was lamenting.
I was not at all disagreeing with you in any way shape or form. Just joining your band wagon. Don't get me started on SS disability abuse by folks who cut their pension short in the process.
Fro other reports the rise in medicare cost next year is likely to takeup any COLA given.hat is not veenh countig those who have private insurance which is going up. Don't be fooled;whe they take 500 billio form medicare and stift it ot the new healthcare plans its has consequeces. Many are already seeing it in nursing homes and home healthcare.Then of curse there ia part A which coninues to go up.People need to contentplate rising cost comig witht eh cuts as those savings never come true and wouldn;t this time.
I am on SS. What I know is my dollar does not stretch near as far as it did in 1999. What I know is the cost of gasoline (less than $1), is nearly 4x higher, food, meds, home medical equipment and home care costs more and so do the twice monthly blood tests. The cost of Part B deductible increased 100% and this does not to begin to explain a $500 untility bill for a 1 bedroom house.
Nor does it explain why Congress quietly takes their annual COLA while the rest of us cannot - but I don't intend to turn thin into something political. .
Nor does it explain why Congress quietly takes their annual COLA while the rest of us cannot - but I don't intend to turn thin into something political. .
As if we didn't have enough misinformation on this thread about the Consumer Price Index, now you have to add this little myth.
Congress has not received a COLA or any type of pay raise over the last two years specifically because Social Security recipients did not receive one. And the last one they did receive, which was when Social Security recipients last received theirs, was nowhere near the 5.8% that SS recipients received.
Good thing you don't plan on turning your erroneous information into something political.
I am on SS. What I know is my dollar does not stretch near as far as it did in 1999. What I know is the cost of gasoline (less than $1), is nearly 4x higher, food, meds, home medical equipment and home care costs more and so do the twice monthly blood tests. The cost of Part B deductible increased 100% and this does not to begin to explain a $500 untility bill for a 1 bedroom house.
Nor does it explain why Congress quietly takes their annual COLA while the rest of us cannot - but I don't intend to turn thin into something political. .
The $1 figure you mention in 1999 was actually a lot higher in prior years and decades. It is a pretty volatile number. Food prices are volatile as well.
Medical costs are higher - but that is in part the result of increased consumption.
And where on earth do you live that you're paying $500 for utilities in a 1 bedroom house (unless that 1 bedroom house is 4000 square feet )? Perhaps you should have your local power company come out to do an energy audit (many utility companies will do that for free). Robyn
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Isn't there also a broader issue in all this?
)? Perhaps you should have your local power company come out to do an energy audit (many utility companies will do that for free). Robyn
