Retiree COLA outpacing workers' pay raise

Wednesday - 6/18/2014, 4:56pm EDT

With only four months left in the inflation-watch countdown, retirees who get automatic cost- of-living adjustments are due an increase of at least 1.69 percent next January. That COLA will be higher if living costs measured by the government increase this month, or in July, August or September.

The precise amount of the 2015 retiree COLA won't be known until mid-October.

By contrast, federal workers are likely to get a flat 1 percent pay bump in 2015. That's the same as they got this year after a three-year pay freeze, ordered by Congress and the White House, finally lifted.

Most of the people getting COLAs are Social Security recipients. That includes about one in six Americans. But the inflation catch-ups will also go to millions of federal and postal retirees or their survivors, as well as to people who get military retired pay.

Virtually all private-sector pensions are not subject to increases because of inflation. Pension benefits are frozen when the employee becomes a retiree and never go up. By contrast, programs like Social Security, as well as the federal and military retirement systems, get regular COLAs to reflect any increase in inflation. If the nation went through a period of deflation (such as the Great Depression or the recent recession) annuities are not reduced.

The size of the federal-military-Social Security COLA is based on the rise in the Consumer Price Index-W from the current third quarter (July, August and September) over the previous year's third-quarter number. Right now the CPI-W stands at 234.216.

The Labor Department's Bureau of Labor Statistics measures price increases/decreases nationwide each month. It also produces the CPI-U, which is sometimes used to determine contractual raises.

Many people think that the CPI-W is an unrealistic (and more expensive) way to measure true inflation. Politicians — Democrats and Republicans — have argued that retirees would be better served, and the nation's taxpayers saved a lot of money, if the government switched to a measurement known as the "chained CPI."

The White House endorsed the chained CPI concept in previous budget proposals but dropped it — probably only temporarily — because of election-year objections from unions and groups representing Social Security recipients. The National Active and Retired Federal Employees Association says that adoption of the chained CPI would trim future COLAs for the typical federal retiree by $50,000 over a 25-year period.

The chained CPI concept is dead for the year. But it will be back in 2015.


NEARLY USELESS FACTOID

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(Source: Discovernator)


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