Spending an almost invisible COLA

If there is a cost-of-living adjustment next January for federal, military and Social Security retirees, they may need their most powerful reading glasses to even see it. Its impact on their purse, wallet and monthly annuity payment will be minimal and hardly enough to offset premium increases for both long-term care and health insurance.

COLAs for the retirees are based on increases in living costs. There are still two months (August and September) to go in the COLA countdown to determine the size of the 2017 inflation-adjustment for tens of millions of retirees. But if living costs remain flat, or drop, this month and in September, then the January COLA could be worth as little as 0.23 percent. That’s how much, or rather how little, inflation went up in July.

Unlike federal pay raises, which are based on political and fiscal considerations, even though they’re supposed to be based on the Employment Cost Index, COLAs are pegged to the rise (if any) in the Consumer Price Index for Urban Wage Earners and Clerical Workers, otherwise known as the CPI-W. The Labor Department uses the CPI to measure inflation or deflation nationwide on a monthly basis. Since oil prices dropped dramatically, the rate of inflation has been flat. Or there has actually been deflation (as measured by the CPI-W).

Retirees didn’t get a COLA this year. In 2015, they got 1.7 percent and in 2014 the retiree COLA was 1.5 percent. Federal workers got a 1 percent raise (not including locality pay) in 2016, 2015 and 2014. Between 2011 and 2013, there was no federal pay raise.

Normally, COLAs are based on the increase in inflation from the third quarter of the current year (July, August, September 2016) over the same period in the previous year. But years of little or no inflation have changed that. The National Active and Retired Federal Employees Association (NARFE) says that as a result of flat inflation last year, “the July 2016 CPI-W figure is 0.23 percent higher than the average CPI-W for the third quarter of 2014 (which was 234.2).”

The 2017 COLA will not be determined until Oct. 18, when the August and September CPI-W numbers are available.” Confused? Welcome to the club.

NARFE is pushing Congress to adopt a different method for calculating the CPI, which would better reflect the actual spending habits of retirees as opposed to younger workers.

Bottom line: The final COLA number won’t be known until Oct. 18. But it isn’t looking good.

Nearly Useless Factoid

By Michael O’Connell

Anna McNeill Whistler was american artist James McNeill Whistler’s mother.

Source: Wikipedia