New report predicts social security COLA 2020 will increase dramatically



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Every month, more than 63 million people, 70% of whom are retired workers, receive benefits from the Social Security Administration. For the vast majority of them, the second week of October tends to give rise to one of the most important announcements of the year. It is at this time that, as a result of the September Inflation Data release of the Bureau of Labor Statistics, the Social Security Administration announces the announcement of the adjustment according to the cost of living for the coming year.

Think of COLA as the "increase" that recipients receive each year to reflect rising prices for the goods and services they collectively face. Since more than three in five retirees rely on their benefits for at least half of their income, this increase can be very important in determining if they can make ends meet.

An elderly man with a pile of money stoked in his hands.

Source of the image: Getty Images.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "How much can social security beneficiaries expect in 2020?"data-reactid =" 34 ">How much can social security beneficiaries expect in 2020?

So what should be the size of COLA that beneficiaries should expect in 2020? Although most analysts have not yet speculated for the reasons I will come back to a bit later, a recently published report gives its perspective on the magnitude of a possible increase in 63 million Americans next year.

In April, the annual report of the social security administrators was published. While this report is primarily designed to provide legislators and the public with a short-term (10 years) and long-term (75 years) vision of the program and its many variables, an aspect that usually goes unnoticed is a glimpse under the radar of what they think that COLA will be in the very short term.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "On page 115 of his more-than-260 pages report, the directors provide a history of all previous COLAs, dating back to 1975, the year in which COLA was linked each year to the Consumer Price Index for employees and urban office workers (CPI-W). Prior to 1975, increases in benefits due to inflation were arbitrarily transferred by special congressional votes. This page also lists a number of short-term program projections, up to 2028. "data-reactid =" 37 "> On page 115 of his more than 260-page report, attorneys provide a history of all previous COLAs since 1975, when COLA was annually linked to the CPI-W Consumer Price Index Before 1975, inflation-related increases in benefits were arbitrarily transferred by special congressional votes.This page also lists a number of short-term projections of the program up to 2028.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Although proxies continue to expect an average COLA of 2 , 6% in its model short-term intermediate costs, the predictors also predict a COLA of 1.8% in 2019 for the year 2020. average retiree amounting to $ 1,467.17 in March 2019, a COL of 1.8% would mean an increase of $ 26.41 per month, or close to $ 317 for the full year. "Data-reactid =" 38 "> Although the directors continue to forecast an average COLA of 2.6% in The forecasters of its model of short-term intermediate costs also provide a COLA of 1.8% in 2019. For the average retiree earning $ 1,467.17 in March 2019, a 1.8% increase in this cost would be an increase of $ 26.41 per month or almost $ 317 for the full year.

Two Social Security cards resting on a broken down stack of money.

Source of the image: Getty Images.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Before being too excited, keep this in mind "data-reactid =" 64 ">Before being too excited, keep this in mind

Considering that the CPI-W has experienced three years of deflation (ie a fall in prices) over the last ten years – a year-over-year price decline has the effect of stabilizing the benefits the next year – an increase of 1.8% in 2020 is actually the fourth largest increase in the last 11 years.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "But before being too excited, there is a important fact to keep in mind: namely that we have not even reached the really important months for calculating COLA (That's why most analysts have not announced their prediction yet). "data-reactid =" 66 "> But before being too excited, it should be kept in mind that we did not even reach the really important months for the COLA calculation (which is why most analysts have not yet made a prediction).

You see, the average IPC-W reading of the third quarter (July to September) is all that matters for the COLA calculation of Social Security, the remaining nine months playing no role. Of course, the months leading up to July can alert us to trends that could affect inflation in the third quarter, but the CPI-O readings between October and June are simply not taken into account in the calculation of the CPI-O. total cost of living. As we have not yet reached these months and the Board's report is often prepared well before the third quarter, the accuracy of its predictions is debatable.

An elderly man visibly upset with a scowl.

Source of the image: Getty Images.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Regardless of the 2020 COLA, you will probably not be happy"data-reactid =" 89 ">Regardless of the 2020 COLA, you will probably not be happy

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "It should also be emphasized that COLA is of vital importance for older Americans it is also a blatant calculation data-reactid = "90"> It is also worth emphasizing that while COLA is of vital importance to older Americans, it is also a flagrant and flawed calculation without easy solutions.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As its name indicates, CPI analyzes The consumption habits of urban workers and clerical workers, almost all of whom do not benefit from the social security system, ignore the spending habits of the elderly, who represent 70% of the beneficiaries of the program. medical care and housing, are often underweighted, while lower costs, such as education, clothing and transportation, which are important for urban and clerical workers, are more weighted high dollars continues to decline For most retirees, regardless of the COLA received each year. "data-reactid =" 91 "> As the name suggests, the CPI-W analyzes the consumption habits of urban workers and clerks, almost none of whom receive It does not take into account consumption habits elderly people, who make up 70% of the beneficiaries of the program, so that the important expenses for the elderly, such as medical care and housing, are often insufficient.the important costs, such as education, l & rsquo; Clothing and transportation, which are important for urban workers and office workers, receive a higher weighting.In summary, the purchasing power of social security dollars continues to decline for most Retired workers, pretty much regardless of the COLA they receive each year.

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "A possible solution that has been touted by Democrats is the the idea of ​​switching to the Consumer Price Index for Seniors (CPI-E) instead of the CPI-O, as the name suggests, the CPI-E would only take into account households aged 62 and older, accurately representing the medical and housing costs of older Americans, but unfortunately CPI-E has no support from Republicans, whose votes would be necessary to change the inflationary burden of social security in the Senate. "data-reactid =" 92 "> A solution considered by the Democrats is the idea of ​​switching to the consumer price index for the elderly (CPI-E), as the name suggests, the CPI- E only takes into account the household consumption patterns of people aged 62 and over, which more accurately reflects the medical and housing costs borne by older Americans., CPI-E does not benefit from any support from Republicans, whose votes would be needed to change the inflationary burden of social security in the Senate.

This means that we are stuck with the CPI-W in the near future, which means that a continuous loss of purchasing power is very likely, regardless of the nature of the increase being considered for 2020.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 94 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The Motley Fool has a disclosure policy."data-reactid =" 102 ">Motley Fool has a disclosure policy.

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