The Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W for short) is a metric provided by the Bureau of Labor Statistics that is used to gauge inflation. The economic force known as inflation occurs when prices rise for everyday items in a variety of marketplaces. Professionals familiar with the landscape of retirement saw early on that inflation was a very real economic threat to the wellbeing and lifestyles of retirees relying on pensions or social security. And so now we have Cost-of-Living Adjustments (or COLAs.) A COLA is based on the CPI-W and every year, for Social Security recipients and Federal retirees receiving a FERS or CSRS annuity, it could mean a boost in income. The worst-case scenario, outside of the apocalyptic, is when a low CPI-W number equates to no COLA whatsoever; 0%. This happened last in 2016.
The COLA for 2020 was announced officially on October 10th and because it is less than 2%, both those receiving their Social Security and those receiving FERS (or CSRS) pensions will all receive the same adjustment. For 2020, that figure is 1.6%. In other years, when that number is between 2% and 3% like in 2019, FERS annuitants will get less of an increase than their CSRS counterparts. This has spawned a groan-worthy joke at your local benefits training sessions: “Diet COLA.” If the adjustment is more than 2% and less than 3%, FERS retirees get a flat 2%. (Flat COLA is a better joke, in my opinion.) CSRS retirees receive the full COLA in such situations, which in 2019 was 2.8%.
Until Next Time,
**Written by Benjamin Derge, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.