The Tug of War Between Inflation and COLA

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For the last few months, we’ve been keeping a close eye on inflation and its effects on the economy. Global inflation, due to the pandemic, is up resulting in higher prices for every good and service and reduced purchase power for us. Because of the high spike in the cost of living, seniors also saw the biggest increase in Social Security benefits in 40 years. Another increase is likely; however, experts can’t pinpoint an exact number as inflation and COLA keep swaying in either direction, CNBC’s Lorie Konish reports.

Inflation and COLA

COLA, or cost-of-living-adjustment, is how the Social Security Administration (SSA) increases monthly benefit payments. Inflation and Cola have a cause-and-effect relationship. When inflation increases, making it more expensive to live, COLA will increase too, to offset cost for seniors. Unfortunately, inflation has outpaced everyone’s higher benefit. Inflation, over the last 12 months, increased 8.3 percent, while last year’s benefit only increased 5.9 percent.

The Consumer Price Index for Urban Wage Earners and Clerical Workers, the indexed used to calculate COLA, states 2020 should have an estimated 8.6 percent increase to Social Security. However, this is still just an estimate. The actual benefit increase will hinge on whether the Fed’s interest hike can slow or decrease the rate of inflation.

Calculating COLA

If inflation is decreased, COLA with increase by a smaller percentage. The new COLA will be calculated in quarter three, by comparing this year’s CPI-W data with last year’s third quarter. Using a COLA calculator can help you set expectations for your new benefit amount.

The Council for Retirement Security works to protect the Social Security Trust, ensuring every senior gets their benefit, regardless of inflation and COLA. Join the fight today.

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