The government shutdown in the first half of October delayed the CPI release by two weeks. Inflation was very low in the last 12 months. According to the government, the Consumer Price Index for Urban Consumers (CPI-U) in September 2013 was 1.2% higher than the same measure a year ago in September 2012.
The annual Social Security cost of living adjustments (COLA) uses a different CPI series, the CPI-W, but it’s a similar situation there. CPI-W in September 2013 was 1.0% higher than CPI-W in September 2012.
This number made it possible to calculate the 2014 Social Security COLA. It will be 1.5%. It’s slightly lower than the 1.7% number for 2013.
Should retirees want a higher Social Security COLA or a lower Social Security COLA?
Naturally people want a higher COLA. There were a ton of complaints when there were 0% COLA a few years back. But the COLA is going to be higher only when inflation is higher.
Some mistakenly thought the Social Security COLA is declared administratively by the President or Congress, and they want their elected officials to take care of the seniors by declaring a higher COLA. That’s not the case. The calculation is automatic. It goes strictly by inflation. A higher COLA with a higher inflation does you no good.
Contrary to intuition and many people’s belief, you want a lower COLA. A lower COLA means lower inflation, which means lower expenses for retirees, which makes your savings last longer.
Pray for a lower COLA if you are retired.
[Update on Oct. 31, 2013]: The Social Security Administration issued press release, which confirmed the 1.5% number I projected in August.
[Photo credit: Flickr user FDR Presidential Library & Museum]
Free Tax Returns
1040EZ, 1040A, and 1040 with mortgages and itemized deductions, no income limit. Free Federal, free State, free e-files. Tax shops charge average $273 for this. Do it all free with H&R Block More Zero.