Federal/Social Security COLA Stalling?

Monday - 7/18/2011, 2:01am EDT

If you want to make a retired friend, neighbor or relative go ballistic (and who doesn't?) tell them the cost of living is going down. Tell him or her that the stuff they want and need costs less than it did a year or two ago. And that you can prove it and they can't dispute it. Then stand back because they may either clock you or faint.

In a world where prices always seem to be going up - from gasoline and rent, to meat, bread and clothing - it is hard for people to believe that we've undergone periods of deflation. That has rarely happened since the Great Depression.

But the Bureau of Labor Statistics, which has the official yardstick which measures inflation/deflation says that in June its Consumer Price Index actually dipped 0.2 percent. A month earlier, in May, it was up 0.2 percent following a rise of 0.5 percent in February and March, and a 0.4 percent increase in April. This is where we were last month.

The CPI readings made by the BLS are very, very important because Social Security, civil service and military retirement payments are adjusted upward when data shows that the cost of living is up. Retirees got a 5.8 percent cost of living adjustment (COLA) in January 2009 but, thanks to low inflation and periods of actual deflation, they didn't get a COLA in 2010. Or this year.

Retirees are on track for a January 2012 COLA. The increase (or decrease) in the CPI will depend on the CPI numbers for the months of July, August and September. If they hold at current levels, CSRS retirees would get something in the neighborhood of 3.3 percent. Those retired under the FERS program would - if they are 62 or older - get one percentage point less. If there were three months where prices dropped dramatically, there might not be any COLA.

Don't believe it, then check this out. It is the official BLS explanation of how it tracks living costs via the CPI process.

And just remember, it could be worse for the retirees. Congress and the administration are considering dropping the current system of tracking inflation in favor of another which is more flexible and, backers say, more realistic. Here's the early-alert we gave you.

This proposed substitute system, the so-called "chained CPI," would take into account that people adjust their spending habits (going for Hamburger Helper instead of filet mignon) based on prices.

Critics say using a different formula would generally mean smaller COLAs each year for retirees. One member of Congress said it would trim the average Social Security increase about $1,000 a year. That reduction would be even greater for CSRS benefits which are higher, in some cases much higher, on average than Social Security payments. Savings to the government would be in the billions of dollars. The loss of income would be the same for retirees.

Feds should know in a couple of weeks whether the formula change will be adopted. But it will be mid-October (when the CPI data for the month of September is released) before retirees know how much, if any, of an increase they will be getting in January.

To reach me, mcausey@federalnewsradio.com


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