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The inflation index (CPI-W) that is used for Social Security and federal retirement COLAs went up .4% in May, but is still negative for the year (-3.1%) with four more months to go. Here is a link to a chart to show how it has changed on a month-to-month basis:
However, there is an aspect to this that I don't understand, if anyone wants to provide some insights it would be appreciated.
When the COLA is negative, my understanding is that benefits remain flat, and are not reduced. The subsequent year, does it start from "zero" at the end of September, or is the negative COLA amount carried over in the computation?
However, there is an aspect to this that I don't understand, if anyone wants to provide some insights it would be appreciated.
When the COLA is negative, my understanding is that benefits remain flat, and are not reduced. The subsequent year, does it start from "zero" at the end of September, or is the negative COLA amount carried over in the computation?
It starts over at zero.
The COLA is based upon the change in prices from the third quarter of one year until the third quarter of the next. There is no carryover from previous years.
The COLA is based upon the change in prices from the third quarter of one year until the third quarter of the next. There is no carryover from previous years.
Even when the prior year was negative, and recipients didn't "suffer" the decrease?
If this is the case, retirees fare pretty well in a bouncing economy. You can have the cost of living go down 10% in 2009, and their income stays flat. Then you can have it go back up 10% in 2010, and they get a 10% raise.
So in effect, they get a 10% gain over a two year period even though the overall cost of living had declined 1% (base of 100, less 10% would reduce it to 90, plus subsequent 10% increase equals 99)?
Theoretically, that would be correct. Realistically, well.....let's just say it isn't realistic.
This is going to be the first time in over 50 years that inflation hasn't occurred on a year-over-year basis and with the cost of living actually having been negative. There is no indication that this will occur again; in fact, hyper-inflation is more of a long-term concern given how the Fed has been printing money.
Nevertheless, even if we took your hypothetical at face value, it would be very easy for Congress to just change the law to take deflationary periods into consideration.
Even when the prior year was negative, and recipients didn't "suffer" the decrease?
If this is the case, retirees fare pretty well in a bouncing economy. You can have the cost of living go down 10% in 2009, and their income stays flat. Then you can have it go back up 10% in 2010, and they get a 10% raise.
So in effect, they get a 10% gain over a two year period even though the overall cost of living had declined 1% (base of 100, less 10% would reduce it to 90, plus subsequent 10% increase equals 99)?
Your basic point is accurate. Some states are giving COLA's in excess of 3% even if the state has a budget deficit. Remember not all of the components used to calculate the COLA are applicable in retirement and should there be a special formula for SS based on the lifestyle of seniors? Should the cost of housing factor in as much etc etc etc? Are many seniors increasing their housing debt? Etc Etc Etc.
CPI-W data and COLA estimates
Cost-of-living adjustments (COLAs) are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is determined and published by the Bureau of Labor Statistics, Department of Labor.
Hmmmm did I read the COLA for retiree's is based on the cost for workers? Please someone I think I have something wrong and it needs clarification. It is wrong isn't it?
However, there is an aspect to this that I don't understand, if anyone wants to provide some insights it would be appreciated.
When the COLA is negative, my understanding is that benefits remain flat, and are not reduced. The subsequent year, does it start from "zero" at the end of September, or is the negative COLA amount carried over in the computation?
If I read the info correctly, the COLA is only given on the first $18k of pension income; so if your pension is higher, then your overall COLA is lesss than 1%. Additionally, you don't get any COLA whatsoever - regardless of the rate of inflation - until you've been retired for at least 5 years. (Not to mention, in order to get a 3% COLA, the rate of inflation has to be 6% since NY basis its COLA calculations on 50% of the rate of inflation.)
All in all, I think I'd stick with the federal system even though it will result in no COLA next January for the first time in several decades.
If I read the info correctly, the COLA is only given on the first $18k of pension income; so if your pension is higher, then your overall COLA is lesss than 1%. Additionally, you don't get any COLA whatsoever - regardless of the rate of inflation - until you've been retired for at least 5 years. (Not to mention, in order to get a 3% COLA, the rate of inflation has to be 6% since NY basis its COLA calculations on 50% of the rate of inflation.)
All in all, I think I'd stick with the federal system even though it will result in no COLA next January for the first time in several decades.
He and I have been having a discussion in another forum and thread that is similar in some ways. I would not disagree with you at all. I just wish they didn't call it a Cost Of Living Adjustment. One of the things I am finding interesting is that different states begin and end the year measured at the end of different quarters thus yielding different results. One of the problems is that government doesn't get a corresponding increase to fund it with. States are cutting budgets furloughing and laying off folks while giving out a COLA at the same time
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