While the 2019 Cost of Living Adjustment amount won’t be available until mid-October, it is as good of as any to look at the possible COLA increase amount. Based on the current inflation trend, it’s very likely there will be a COLA increase in January 2019.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.2% over the last 12 months to an index level of 246.155. However, this does NOT mean COLA recipients will receive a 3.2% increase next January. This index is the one used to calculate the COLA, but the amount isn’t based on a 12-month comparison.
The CPI-W figure for July 2018 was 2.71% higher than the average CPI-W figure for the 3rd quarter of 2017, which is used to determine the 2019 COLA.
Here’s how it works:
- CPI-W readings are taken from the 3rd quarter (July to September) of the current year
- Data is compared to the average CPI-W reading form the 3rd quarter of the previous year (2017)
- The average from the current year (2018) is compared to the figure from the 3rd quarter of 2017
- If the average goes up in 2018, then the difference, rounded to the nearest 0.1%, is what beneficiaries receive as the 2019 increase
- If the figure is lower, due to deflation, no adjustment is made
What determines the COLA?
According to the Bureau of Labor Statistics (BLS), these are the 8 most significant spending areas that have the highest impact on whether beneficiaries of the next COLA will receive an increase:
- Food and Beverage—cereal, milk, chicken, wine, full-service meals, snacks
- Housing—rent of primary residence, owner’s equivalent rent, fuel oil, bedroom furniture
- Apparel—men’s shirts and sweaters, women’s dresses, jewelry
- Transportation—new vehicles, airline fares, gasoline, motor vehicle insurance
- Medical Care—prescription drugs, medical supplies, physician’s services, hospital services
- Recreation—TV’s, toys, pets and pet products, sports equipment, admissions
- Education and Communication—college tuition, postage, telephone services, computer software and accessories
- Other Goods and Services—tobacco and smoking products, haircuts and personal services
*This is not an exhaustive list, merely examples.
This calculation doesn’t always work out well for retirees. Medical care is often one of the most important spending costs for COLA recipients; CPI-W doesn’t always consider the higher medical care and housing costs for seniors compared to younger people in the urban and clerical worker category.
COLA beneficiaries received a 2% COLA in 2018, the highest in 6 years.