Inflation could prompt largest Social Security cost-of-living adjustment in decades.

[daylatedollarshort]

We tried to plan for the possibility of high inflation - refinanced the fixed rate mortgage as rates dropped twice, bought TIPS, have tried to continually lower our fixed expenses each year, and the non-COLA pensions are offset somewhat by the fixed rate mortgage. The pensions won't go up but mortgage won't either. Our house should increase in value. We also don't have a lot of long term bonds. On paper at least, per my modeling, we end up with a higher net worth with high inflation than we would without it.

 

[hogwild]

The CPI-W index, for July, was posted this am. It increased 6%. (from 252.636 to 267.789). The August index will be announced Sep 14 and the Sep index will be announced Oct 13. The average of those three numbers will be the 2022 SS COLA.

 

[braumeister]

And a visual look at it (the dotted line shows last year):

 

[athena53]

I don’t think Medicare premium increases are based on inflation statistics like SS but rather on the actual cost of the program.

I agree- but given the skyrocketing health costs in the US, it's pretty easy for premium increases to exceed the COLA adjustment.

 

[audreyh1]

I agree- but given the skyrocketing health costs in the US, it's pretty easy for premium increases to exceed the COLA adjustment.

Yes, that has happened before. Particularly when the COLA is 0 or very low. Thus the “hold harmless” provision for those not subject to IRMAA.

Anyway, unlike SS, you can’t estimate the Medicare Part B premium increase ahead of time because it’s not based on a published number like CPI.

 

[audreyh1]

The CPI-W index, for July, was posted this am. It increased 6%. (from 252.636 to 267.789). The August index will be announced Sep 14 and the Sep index will be announced Oct 13. The average of those three numbers will be the 2022 SS COLA.

Were you rounding up?

Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment.

https://www.bls.gov/news.release/pdf/cpi.pdf

 

[Golden sunsets]

Here's another article which follows and calculates the trend toward the 2022 COLA. At this point it is at 5.7%, with two more data points to follow.

https://www.myfederalretirement.com/fers-csrs-cola-watch/

 

[ExFlyBoy5]

Were you rounding up?

https://www.bls.gov/news.release/pdf/cpi.pdf

From the report you cited:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 6.0 percent over the last 12 months to an index level of 267.789 (1982-84=100). For the month, the index rose 0.5 percent prior to seasonal
adjustment.

The 5.4 you reference was from the CPI-U

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis after rising 0.9 percent in June, the U.S.Bureau of Labor Statistics reported today. Over the last 12 months, the all items
index increased 5.4 percent before seasonal adjustment.

SS COLA comes from the CPI-W index.

 

[audreyh1]

I see. Thanks much. I thought they used the CPI-U

Learn something new every day!

 

[FANOFJESUS]

What ever it is people need it with all the price hikes I am seeing.

 

[teejayevans]

Just a guess here.
Since the potential issue with those born in 1960 affects those who will be 61 this year, then logically when it is states that those who are 62 get a COLA increase, so effectively those who are 61 get the AWI adjustment based on year 60 data which doesn't take effect until age 61.
So the data can be confusing, as sometimes it can be the actual age referenced vs. sometimes it can be the calculated age that the data references.

So if AWI drops for those now 61, say 5%, and the COLA goes up 5%;
Then those 61 get the AWI decrease but not the COLA, so their SS will be 10% lower than those who are 62?
Yeah, that’s gonna be a problem, don’t forget those who are 61 now are the first year that FRA is 67.

 

[Gumby]

.... don’t forget those who are 61 now are the first year that FRA is 67.

A whole two months more than those born in 1959.

 

[indiajust]

Hmm. Current fed budget is trillions in the red, no ability to pay current bills without monetary destruction. Paying bills by printing and borrowing leads to price inflation. And CPI inflation adjustment leads to higher entitlement spending.

Looks like a feedback loop. Wonder how far it will go?

 

[Katsmeow]

I am forever the skeptic; I'll believe it when I see it. That said, I have to admit I have had some fun calculating what increases I might get.

With 6% for July, the chance of a large COLA are pretty good unless things reverse quite a bit in August and September which I don't really see happening. It might not end up at 6.2% (as currently estimated) but I would be surprised if it was under 5% and shocked if it was under 4%. I do think we should sort of look at this year as 2 years. That is combine 2020 and 2021 since last year was so messed up due to Covid. Much of the increase now is due to high demand and lower supply as a result.

.

I believe a bill has been proposed in Congress to change the CPI factor for cola calculations from CPI-W, inflation for Urban Wage Earners to CPI-E, inflation for the Elderly, which is higher than W, by a couple of hundredths of a percent. I'm not sure if that proposal has any chance of success this year. Methinks not.

At one time, I thought it was really important to make that change. Now that I realize how little a difference it would make, I am more sanguine about the whole thing.

I agree- but given the skyrocketing health costs in the US, it's pretty easy for premium increases to exceed the COLA adjustment.

Well it depends on how much you get in SS. The Medicare Part B premium would have to well more than double for it to exceed my COLA adjustment. Even with a 20% increase in Part B I would still get a healthy COLA.

 

[W2R]

With 6% for July, the chance of a large COLA are pretty good unless things reverse quite a bit in August and September which I don't really see happening. It might not end up at 6.2% (as currently estimated) but I would be surprised if it was under 5% and shocked if it was under 4%. I do think we should sort of look at this year as 2 years. That is combine 2020 and 2021 since last year was so messed up due to Covid. Much of the increase now is due to high demand and lower supply as a result.

Sounds logical to me! This is getting exciting. I can't even imagine! I think it's just human to feel a little happy greed when confronted with unexpected cash.

 

[jgman]

I am about to retire from the federal government on Dec 31, 2021 and am to young for SS but will receive the supplement, which is based on my future SS benefit. The supplement does not receive a COLA. If I were to retire Jan 1, 2022, would the 2022 COLA be factored into my FERS supplement amount? Anyone know?

 

[Amethyst]

Have you asked your HR retirement adviser? Ours always seemed very up on this kind of question. And if the agency rep didn't know, she usually had some outside expert she could ask. These were retired employees, who took Office of Personnel Management training and became paid retirement benefits consultants.

I am about to retire from the federal government on Dec 31, 2021 and am to young for SS but will receive the supplement, which is based on my future SS benefit. The supplement does not receive a COLA. If I were to retire Jan 1, 2022, would the 2022 COLA be factored into my FERS supplement amount? Anyone know?

 

[jgman]

Have you asked your HR retirement adviser? Ours always seemed very up on this kind of question. And if the agency rep didn't know, she usually had some outside expert she could ask. These were retired employees, who took Office of Personnel Management training and became paid retirement benefits consultants.

LOL....I was told by our clueless HR rep that I needed to contact OPM for any questions about the supplement.

 

[Golden sunsets]

If you can't get a solid answer, why not push back your retirement by a 3 days. Unless things have changed, retiring (from a federal job) during the first 3 days of the month, means that you are entitled to a full pension check for that month, without having to work that month. More money in your pocket, plus the potential higher supplement.

 

[hogwild]

The CPI-W index, for August, was posted this am. It increased 5.8%. (from 253.597 to 268.387). The September index will be announced announced Oct 13. You may recall the July increase was 6.0%. The SS COLA will be the average of the 6.0%, the 5.8% and whatever the September CPI-W will be.

 

[braumeister]

Even if it goes way down next month, there will still be a big increase.

 

[ExFlyBoy5]

I find it interesting that the the financial "newz" folks attributed the very small "pop" in the futures this AM to the "lower than expected increase." Of course what is buried three paragraphs in is that it was 5.3% and not the expected 5.4%. One tenth of one percent? That is headline worthy?

 

[hogwild]

Even if it goes way down next month, there will still be a big increase.

That's true. Even if the September CPI-W is 0%, which is extremely unlikely, the COLA would be 3.9%. (6+5.8+0)/3

 

[Montecfo]

CPI gained .3% in August, down from .5% in July, a meaningful month to month reduction.

If you annualize it is 3.6% versus 6.0%.

This is very good news.

 

[hogwild]

CPI gained .3% in August, down from .5% in July, a meaningful month to month reduction.

If you annualize it is 3.6% versus 6.0%.

This is very good news.

Yes, that is a good trend, but still above the Fed's target rate and I don't think they will raise rates for several quarters.