Retiree COLA = goose egg

There likely won't be a cost of living adjustment for federal retirees and people who get Social Security. Senior Correspondent Mike Causey explains why.

One of the worst kept secrets of the year (so far) is whether federal, military and Social Security retirees would get a cost of living adjustment in January. And if so, how much.

Most people who watch the COLA countdown have known since the inflation-measuring countdown started in July that it wouldn’t be much, if anything. Turns out “if anything” is the operative phrase because the retirees will get nothing more in their January checks.

But their annuity payments are likely to drop, in some cases a lot, as health insurance premiums rise for most plans in the FEHBP. The increase is 6.4 percent on average (for both the government and employee-retiree total premium), but 7.4 percent for the average person’s share of the premium.  Whichever one you understand, premiums will be going up and take-home annuity will be going down, unless people shop around during the November-December open season that begins in a couple of weeks.

Retirees got a 1.7 percent COLA in 2014 that first showed up in the January, 2015 payment.  The year before they received 1.5 percent and the year before that the COLA was 1.7 percent.  That’s to a spike in gasoline prices retirees got a 3.6 percent COLA in their 2012 payments.  But that came after two years when there were no COLAs.

What people have known for a long time becomes official today when the  Labor Department data will release data which shows that living costs actually dropped between the third quarter (July, August, September) of 2014 over the third quarter of this year.

The good news is that even though living costs are down, according to the government, there will NOT be any reduction in the current level of benefits for any retiree.  The COLA is a one-way elevator.  It does up (when living costs rise) but it does not go down when there is deflation.

Many retirees argue that the Consumer Price Index the government uses to track inflation/deflation is not an accurate indicator for older people.  They say it doesn’t take into account the generally much higher medical bills for retirees that are not covered by insurance or Medicare.

Many politicians also agree that the current CPI doesn’t accurately track inflation or peoples’ spending habits which change when a product, meat, gasoline, flat screen TVs, goes up in price.  They argue that the government should use the so-called Chained CPI.  Using that different yardstick would reduce FUTURE COLAs for retirees by about 0.4 percent year. Current benefits would not be changed, but people would get less in future under the chained CPI. Jessica Klement, legislative director of the National Active and Retired Federal Employees, estimates that the typical CSRS retirees would have future benefit increases reduced by about $50,000 over a lifetime of retirement.  In other words they would get $50,000 LESS over that time period than they would have received under the current system.

The Obama administration originally endorsed switching to the chained CPI and away from the current measurement.  The idea is likely to come back again, and again. But as long as it impacts people under Social Security retired feds probably don’t have to fear it.

Nearly Useless Factoid:

By Michael O’Connell

H.A. and Margret Rey, the creators of the Curious George books, fled Paris, France on homemade bicycles hours before Hitler’s army invaded the city. Among the five in-process manuscripts they took with them was the first Curious George book.

Source: Mental Floss

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