What is COLA?
The automatic cost-of-living adjustment – COLA -- for Social Security and Supplemental Security Income recipients allows their benefits to keep pace with inflation. COLA has been in effect since 1975 and is linked to the Consumer Price Index for Urban Wage Earners. In 1980, benefits were increased by 14.3% when inflation was at an all-time high. Thirty years later in 2010 and 2011, COLA was 0%, and in 2017 COLA will be 0.3%. The average COLA since 1975 is 3.8%, yet the 20-year average is only 2.1%.
What does COLA mean to you?
If you are receiving Social Security benefits or plan to start in 2017 your benefit will increase 0.3%. The chart below shows the estimated average monthly Social Security benefits payable in January 2017, according to the Social Security Administration. Depending on where you purchase a cola the monthly COLA may not be enough to buy it.
|All Retired Workers||$1,355||$1,360|
|Aged Couple, Both Receiving Benefits||$2,254||$2,260|
|Widowed Mother and Two Children||$2,686||$2,695|
|Aged Widow(er) Alone||$1,296||$1,300|
|Disabled Worker, Spouse and One or More Children||$1,990||$1,996|
|All Disabled Workers||$1,167||$1,171|
COLA is certainly an important part of your benefit; however, one weakness in the COLA increases is that the Consumer Price Index for Urban Wage Earners looks at spending by people of all ages and does not take into consideration that the spending habits of seniors are different than the overall population. Seniors’ expenses are heavily weighted toward food, gas, and medical care – expenses that generally have increased at a rate higher than inflation.
A 65-year-old couple retiring today can expect to spend $260,000 on health care throughout retirement. That amount assumes you qualify for Medicare coverage and does not include expenses like over-the-counter drugs, most dental services and long-term care. It also assumes retirement ends in 20 years – around age 85.1
1 U.S. Bureau of Labor Statistics, Consumer Expenditures Survey, Aug. 30, 2016.
2Retiree Health Care Cost Estimate. Fidelity Investments, Aug. 16, 2016.
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