The 2020 Cost of Living Adjustment (COLA) is positioned for an increase with the latest March COLA measurement standing at 0.6 percent above the inflation index used to set the 2020 COLA increase (if any). There is still time go before the official measurement period begins but with gas prices expected to rise this summer it appears more likely there will be a COLA increase in 2020. COLA increases are based on the inflation measurement period of the 3rd quarter (July, August, and September) compared to the previous 3rd quarter. The biggest reasons for the increase were because of two key categories: energy and shelter.
The 2019 Cost of Living Adjustment (COLA) saw 2.8% increase based on the final CPI calculations for 3rd quarter inflation measurement period. This was the largest COLA increase since 2011 when it was 3.6%. Last years increase was 2%.
“The 2.8 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 62 million Social Security beneficiaries in January 2019. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2018. ” ~ SSA statement
2020 COLA (Cost-of-Living Adjustments) Increase Watch
Signs Pointing to a COLA Increase in 2020
- The March 2019 CPI-W increased by 1.77% year over year and at 247.768 is .6 percentage points above the official 2018 CPI-W measurement of 246.352.
- The 2019 Q1 CPI-W increased by 1.43% year over year. While this increase does not count towards the 2020 COLA measurement it is a positive early sign towards another COLA increase.
- Oil and gas prices are soaring since the Trump administration announced it would not renew waivers that allowed countries to buy Iranian oil without facing U.S. Sanctions. Gas, which many retirees would argue is an unfair measurement, factors heavily into the COLA formula.
- New home sales increased 4.5% to a seasonally adjusted annual rate of 692,000 units in March, the highest level since November 2017.
Signs Pointing to no COLA Increase in 2020
- The CPI-W needs to continue increase in order for there to be a COLA increase. If we used the 2019 Q1 CPI-W (246.273) there would be no increase in 2020. The 2018 CPI-W official measurement period was 246.352 so it’s not too far off.
- The housing market may be on the decline despite the most recent new home sales report which significantly contributes to the COLA measurement.
- Economic growth is also expected to slow in 2019 without the benefit of additional tax cuts or other stimulus with the Democrats now having control of the House.
A lot can change between now and the 3rd quarter measurement period so stay tuned.
2019 Cola Effective & Payment Dates:
- Retired military veterans, VA rates for compensation and pension for disabled veterans and surviving families will be effective December 1, 2018 and will be reflected on the first check to be paid on December 31, 2018.
- Social Security benefits will be effective beginning with the December 2018 benefits, which are payable in January 2019.
- Federal SSI & SSDI payment levels will be effective for payments made for January 2019.
Why a COLA Increase May Not Help Social Security Recipients
If Medicare climbs at an equivalent or higher rate any increase may be offset by medicare care premiums. Additional senior citizen household spending has typically outpace COLA because the measurement to determine COLA doesn’t reflect the expenses that impact seniors most, like healthcare (not a heavy COLA calculation) and gas (a heavy COLA calculation).
Will Chained CPI Replace CPI-W?
Chained CPI is a new method for measuring inflation and was recently adopted with the new tax plan. Chained CPI dampens inflation by as much as .2 to .3 percent which has many advocacy groups concerned that this method will carry over to COLA. Few people are against a better measurement of inflation, in fact many advocacy group believe even the CPI-W is not the best measurement for retirees, however, Chained CPI many contend would be a step backward.
COLA (Cost-of-Living Adjustments) are for the following individuals or areas:
- Retired Military Veteran
- Disabled Veterans – See VA Disability Rate Tables
- Veterans’ Pension Benefits – Veterans Pension Rate Tables
- Survivor Benefit Annuitants – Survivors’ Pension Rate Tables
- Surviving Families of Veterans – Parents’ Dependency and Indemnity Compensation (DIC) Tables
- Social Security recipients
- Federal Civilian Retirees
- Supplemental Security Income (SSI)
- Social Security Disability Insurance (SSDI)
- Eligibility for Medicare Extra Help and Medicaid
- Federal & State food and housing assistance programs
|Quarterly CPI-W for 2018 thru 2019|
|Monthly CPI-W for 2018 & 2019|
|Month||2018 CPI-W||2019 CPI-W||YoY Increase|
|2019 Official COLA Measurement – CPI-W
|Third quarter total||719.004||739.056|
|Average (rounded to the nearest 0.001)||239.668||246.352|
|Inflation According to the CPI-W||2.00%||2.80%|
|Quarterly CPI-W for 2017 thru 2018|
|Monthly CPI-W for 2017 & 2018|
|Month||2017 CPI-W||2018 CPI-W||YoY Increase|
The CPI-W takes into account eight major spending categories:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services
How COLA is Determined
The Cost-of-Living-Adjustments (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W). It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September).
Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January.
- The COLA increase is only set at the CPI-W if the increase is less than 2 percent.
- If inflation is between to 2 to 3 percent than COLA is set at 2 percent.
- If the CPI-W is greater than 3 percent than COLA is set at 1 percent below the CPI-W.
COLA Versus Federal Pay Increases
Pay increases for current federal workers and COLA for retired workers often differ because they are based on changes in different economic variables.
Federal Pay increases are based on changes in private-sector wages and salaries. Increases in pay for federal civil service workers therefore are indexed to increases in the wages and salaries of private-sector employees. The objective of federal pay policy is to keep pay in the federal government competitive with pay in the private sector.
Cost-of-living adjustments (COLA) ensures that a retiree’s income will purchase the same amount of goods and services after years of retirement that it purchased at the start of retirement.
|History of COLA (cost-of-adjustments) since 1975|
|Money & Finance||COLA Adjustments|
|VA Disability Rates||Social Security|