Is big COLA worse than small COLA?

This article was originally published here

Due to inflation, Social Security beneficiaries will be eligible for a record-high cost-of-living adjustment in 2023.  

For instance, the government may offer COLA on Social Security payments each year. The COLA adjustment made by the Social Security Administration (SSA) for 2021 was 1.3%; for 2022, it is 5.9%. In contrast to the 1.3% rise in 2021, recipients of Social Security will get a 5.9% boost in payments in 2022. 

There is joy among retirement communities since the highest cost-of-living adjustment in 40 years is expected for the millions of people who retired through the federal civil service program. This also applies to everyone eligible for retired military pay or Social Security: between 8% and 11%. 

For the largest group in the country, a COLA in that range—or possibly more—would be the largest rise in decades. The average COLA in January of this year was 5.9%. It was 4.9% for federal employees under the more recent FERS retirement program. 

However, many clouds do have a silver lining. The nation’s largest rise for the greatest number of individuals, the yearly COLA catch-up, is no exception. Any record inflation catch-up in 2023 is fantastic, whether it is 8%, 11%, or higher. 

No matter how much of a record COLA there is, it won’t ease the financial hardship that many seniors are experiencing. It won’t make up for the historic inflation that the country and the rest of the world are experiencing, particularly after years of quite mild price rises of 2% to 3%. 

Living expense increases and inflation will be included in the January 2023 COLA. You now pay for products using pricing information from 2021. 

The COLA’s precise value will not be revealed until October. That is when the July, August, and September inflation-tracking CPI statistics will be released. This news will be very significant, but it will not be enough for many individuals. And the COLA news is considerably worse for federal employees who have retired or who will retire under the newer FERS scheme.

Due to a diet-COLA provision, FERS retirees get one percentage point less than CSRS/Social Security beneficiaries if inflation rises beyond 3%. That is greater inflation protection than most retirees in the private sector receive. But it’s not nearly enough to keep up with necessities like gasoline, food, and clothing. In addition, many retirees have greater medical and home care expenditures, which are not completely represented in CPI figures. 

Retirees, such as those covered by the FERS program, are not completely protected against inflation during high-inflation years. They lose purchasing value year after year during times of strong inflation, like the current one. There are ideas that would replace the COLA with a government metric that accounts for the increased expenditures of older retirees, who are supported by organizations like the National Active and Retired Federal Employees. 

The good news is that the preparations are being made for a possibly record-high inflation adjustment! 

On the other hand, it would be a reaction to an unprecedented increase in inflation, implying that more people are living paycheck to paycheck. And before things get better, they can certainly always get worse. 

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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].