USA Today has reported that the annual Social Security cost-of-living adjustment is expected by Oct. 10, but the news is not expected to be all that encouraging.
More than 60 million Social Security beneficiaries pay pretty close attention to the COLA announcement each year, and with the announcement just a few days away, there is speculation that the COLA for 2020 will be about a 1.6 percent increase.
As the USA Today story indicates, since 1975 Social Security’s COLA has been tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is an inflationary index that monitors eight major spending categories to determine Social Security’s COLA. The eight categories include food and beverages, housing, apparel, transportation, medical care, recreation, education and communication and other goods and services.
The government has indicated that it uses the CPI-W because it has respective weightings to help measure the inflation or deflation that workers are facing. The reason we will find out the COLA announcement Oct. 10 is that the U.S. Bureau of Labor Statistics (BLS) will release inflation data from September 2019, which is the last piece of information needed to determine Social Security’s COLA.
About The Formula
In order to calculate Social Security’s COLA, the average CPI-W reading from the third quarter of the current year is compared to the average CPI-W reading from the third quarter of the previous year. If the average reading has risen, it signals year-over-year inflation, in which case beneficiaries will receive a “raise” that’s commensurate with the percentage increase, rounded to the nearest 0.1%.
In the rare event that deflation occurs – i.e., the average reading declines year over year – benefits would remain static from one year to the next. Social Security payouts, thankfully, can’t decline because of deflation.
