Social Security COLA

source

CPI and COLAs

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.1 percent over the last 12 months to an index level of 222.686 (1982-84=100)."CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation ...The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

source

Cartoon: Cost of Living Adjustment

Cost of Living August 2010

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but based on the average CPI-W for Q3 2010 over the highest preceding Q3 average - the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 for there to be an increase in Social Security benefits in 2011.

source

Social Security and COLA

This graph shows CPI-W over the last ten years. The red lines are the Q3 average of CPI-W for each year.

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

Even though there was no increase last year, and there will probably be no increase this year, those receiving benefits are still ahead because of the huge increase in Q3 2008.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average ... the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 or there will be no increase in Social Security benefits in 2011.

In July 2010, CPI-W was at 213.898, so CPI-W will have to average above 216.294 in August and September for the Q3 average to be at or above Q3 2008. That suggests an increase in COLA is very unlikely right now.

source