Bleak Outlook for 2017 COLA

For federal retirees who may be looking for any good news with regard to a cost of living adjustment (COLA) in January 2017, there may be a very small amount of good news.  The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased by 0.37 percent in June 2016. This index is used to determine the annual COLA amount, if any, in the coming year.

But, as many readers know, it is not that simple. Because there was no COLA for federal retirees and Social Security recipients in 2016, the 2014 third quarter average is the figure used in calculating the 2017 COLA. When calculating the cost of living adjustment for 2017, the law governing the Social Security Administration requires the agency to compare the three-month average figure with the average for the same three months of “the last year in which a COLA became effective.

So what does that mean for a 2017 COLA increase? Next year’s cost-of-living adjustment (COLA) will be just two-tenths of 1 percent, according to predictions in the annual report of the trustees for Social Security and Medicare. That is not a final figure as the calculations for the 2017 increase will not be known until October 2016.

The latest inflation figure indicates an upward trend, so the final figure could be higher than the .02 projection as it was based on older inflation figures. The average monthly Social Security benefit is $1,341. For this average Social Security recipient, even assuming a higher inflation rate, next year’s COLA increase is unlikely to be over $5 per month. Before the most recent price increase at Starbucks, that $5 would probably have bought another cup of their fancy coffee each month.

We do not yet know how much of an increase there will be in health insurance coverage next year but it is a pretty safe bet that many plans under the federal system will have an increase that will be higher, probably much higher, than $5.00 per month.

In short, federal retirees will likely face a loss of real income or purchasing power in 2017.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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