COLA at 8.7% in 2023
The Bureau of Labor Statistics (BLS) inflation data are utilized annually to create an automated cost-of-living adjustment (COLA) for employees (BLS).
Inflation has been growing in 2022, one of the most pressing concerns for Americans today. If you are retired or planning to retire, keep an eye on monthly inflation statistics because they impact the annual COLA adjustment for federal retirees and Social Security income. The additional payments will be made available to recipients beginning in January.
The CPI-W index is used to calculate the magnitude of the increase automatically.
COLA 2023, All-Time High Since 1981.
According to the Bureau of Labor Statistics’ most recent 2022 inflation report, inflation was 0.4% higher in September based on the Consumer Price Index for All Urban Consumers (CPI-U). According to the BLS, the all-items index (a different index from the CPI-U) climbed 8.2% during the last year.
The Consumer Price Measure for Urban Wage Earners and Clerical Workers (CPI-W) is the BLS index that many FedSmith readers are interested in. This index has risen 8.5% in the last year.
The CPI-W is the most important index for retirees who receive a federal employee annuity payment. It is also the amount computed for the 2023 COLA for Social Security payments.
It is now at 291.854 on the index.
The average CPI for the third quarter of 2021 was 268.421. This is critical because the yearly COLA is calculated by comparing the year-over-year growth in the CPI-W using the average of the third-quarter months of July, August, and September. This equals an 8.7% rise over the third-quarter average last year.
The greatest COLA rise in the last three decades was 14.3% in 1980. The 2023 COLA increase will be the highest since 1981, when it was 11.2%.
In 1981, inflation was 10.3%, and the annual COLA was 11.2% higher than the current amounts.
Since Obama assumed office, inflation has been on the rise. If the methods used to calculate it haven’t evolved, the current trend could be far more severe than the one observed during Carter’s tenure. In general, modifications in inflation calculations have resulted in lower reported inflation. The updated method shifted the CPI’s idea from assessing the cost of living required to maintain a steady level of life. The revised computation technique considers the cost of living rather than price increases.
According to one source that records this data, the current inflation rate would be around 17% if the earlier calculating technique had been utilized.
Are You Dissatisfied with the Cola Increase?
In 2022, inflation has remained high. As a result, retirees may be surprised by downward revisions to their 2023 COLA expectations, as earlier estimates in 2022 were 11% or higher. The bad news does, however, have a bright side.
COLAs do not fully offset inflation. As a result, the purchasing power of a retired person’s income decreases with time. For example, since 2000, the purchasing power of Social Security income has plummeted by more than 40%.
Retirees benefit financially with lower inflation and lesser COLAs. Because COLAs do not entirely replace the purchasing power of retirement income, lower inflation and lower COLAs usually better retain a retiree’s purchasing power. While huge COLA payments in response to high inflation deliver more funds, each dollar buys less than it did previously. In light of this, seniors should view lowering COLA estimates as great news.
Why Does Your Retirement System Affect Your 2023 COLA?
Retired federal employees who retired via the FERS system will get 1% less than those who retired under the CSRS system in 2023. This is because they receive the full COLA for Social Security while not the full COLA for their pension or annuity.
Beginning in 1987, CSRS was phased away. Less than 100,000 active government employees are still employed under the CSRS system. The majority of federal retirees receive CSRS benefits.
Social Security is not a benefit of the retirement plan for CSRS employees. Some CSRS employees earn Social Security benefits based on jobs other than working for Uncle Sam. However, this is not a mandatory component of the CSRS scheme.
During their federal government careers, FERS personnel can also invest for their future retirement through the Thrift Savings Plan (TSP). The federal government contributes an additional matching amount to the TSP to offer a higher income stream during retirement.
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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].
