The Social Security Administration announced today that the annual cost of living adjustment for Social Security recipients will be 1.5%. Recipients will begin receiving this new amount in January.
The increase is among the smallest since automatic adjustments were adopted in 1975 due to consumer prices not going up much in the past year.
It is expected that OPM will soon announce 1.5% COLAs for all CSRS retirees and for FERS retirees eligible for the COLA. FERS retirees (other than special category employees) do not begin earning a COLA until age 62.
Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association (NARFE), expressed concern about the amount of the announcement, saying, “The cost-of-living adjustment (COLA) for next year is welcome news for countless Americans who rely on the increase to keep up with the rising price of food, housing, transportation and medical care. Despite the partial relief this COLA will provide, the announcement is a reminder that our method for calculating the rising cost of goods and services is out of sync with the reality faced by millions of federal retirees, Social Security recipients and military retirees, who spend more than twice as much on medical care than the population measured by the CPI-W formula.”
While the usual consumer price index (CPI) deals with the rise and fall in fixed items, a “chained CPI” would also consider choices people may make as a result of changes in their behavior. For example, if the price of beef goes up, many people will buy chicken instead because it may be a substitute that costs less. Also, when the price of a product goes up, people will probably buy less of that product.
The chain weighted CPI incorporates changes in both the quantities and prices of products. When it comes to calculating costs for multibillion dollar programs like Social Security, a chained CPI is likely to mean that benefit increases do not rise as much. Over time, benefits, payments, and pensions that are adjusted with CPI calculations could all fare differently under chained CPI rules.
The rate will not be the same for all former federal workers. As is often the case with government benefits, you will probably need to diagram some of the sentences to understand the amount of the increase.
Here is how the COLA percentage is calculated for some federal retirees:
- For Civil Service Retirement System (CSRS) or Organization and Disability Retirement System (ORDS) benefits, the increase percentage is applied to your monthly benefit amount before any deductions, and is rounded down to the next whole dollar.
- For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.
For those who want to know more about the calculation, visit the Office of Personnel Management website.