The Sky Is Falling! No COLA Increase for 2016 Probable

[b23hqb]

Oh dear! Oh my! Nola COLA increase, by law. Those nasty laws, unless all the elected spineless reps decide to change it quickly.

Was all over the news here in retired-ville yesterday.

http://www.mercurynews.com/news/ci_28957343?utm_source=inthenews

 

[Hodr]

The COLA (unlike the yearly federal raise) is tied to their inflation index, which as the article states can be affected by the price of gas (if gas/diesel is cheaper, services and products that rely on gas are cheaper).

So, if cheaper goods and services have led to a decrease in the cost of living, why do we need a cost of living adjustment?

Sounds like the system is working just fine.

 

[Hijinx]

The COLA (unlike the yearly federal raise) is tied to their inflation index, which as the article states can be affected by the price of gas (if gas/diesel is cheaper, services and products that rely on gas are cheaper).

So, if cheaper goods and services have led to a decrease in the cost of living, why do we need a cost of living adjustment?

Sounds like the system is working just fine.

Have you bought beef or eggs lately?

 

[Restitution]

The COLA (unlike the yearly federal raise) is tied to their inflation index, which as the article states can be affected by the price of gas (if gas/diesel is cheaper, services and products that rely on gas are cheaper).

So... are you actually trying to argue that goods and services have decreased in lock step with the prices of diesel and gasoline? If so, according to your hypothesis, the price of goods should be down approximately 40% since last year.

Funny... I don't see the change...

 

[Hijinx]

So... are you actually trying to argue that goods and services have decreased in lock step with the prices of diesel and gasoline? If so, according to your hypothesis, the price of goods should be down approximately 40% since last year.

Funny... I don't see the change...

Yeah I remember when the price of fuel went up they placed a surcharge on truck deliveries to pay for the extra cost of fuel.
I haven';t seen them reduce anything.

 

[SamSpade]

So... are you actually trying to argue that goods and services have decreased in lock step with the prices of diesel and gasoline? If so, according to your hypothesis, the price of goods should be down approximately 40% since last year.

Funny... I don't see the change...

The thing is, the data they use to BASE the cost of living may fluctuate, and it may well not reflect in the way a lot of people live. For instance, if you don't drive very much or rely on public transportation, the lowered cost of gas probably doesn't affect you that much, but things such as eggs or beef - mentioned previously - have gone way up.

I used to know the guys that computed the data for the CPI, and even they said the stuff they use would make most people shake their head.

 

[Hodr]

So... are you actually trying to argue that goods and services have decreased in lock step with the prices of diesel and gasoline? If so, according to your hypothesis, the price of goods should be down approximately 40% since last year.

Funny... I don't see the change...

I'm not arguing the validity of the COLA measurement, but I know that fuel costs being 40% lower this year has contributed more than a 2-3% difference in my personal budget. So it's reflective of reality for me.

My understanding is that whenever the COLA count is negative they do not provide an increase, but neither do they reduce the payout. So when you have multiple years of negative COLAs as we have had recently, you are actually getting a bit of an increase (compared to the general economy) just by remaining at the same level.

Then, when the COLA count goes positive again (with respect to the now lowered level) you get paid a second time for those increases. At least this is the way the retirement expert at FEDWeek.com explains it.

Now, weather or not you agree with the method they use to create the COLA count, is another issue. I was just stating that gas is a non-negligible factor in the economy, and it doesn't seem unreasonable that a significant reduction in the cost of gas would have an effect on the count.

 

[b23hqb]

Regardless, the elderly, illegal immigrants and poor to be hit the hardest. As a disabled vet, I think I'll be ok without it.

http://www.examiner.com/article/no-...eneficiaries-2016-blamed-on-lower-fuel-prices

Approximately 1/5 of the nation’s population will find itself without a cost of living adjustment (COLA) included in their Social Security benefits for 2016. The group, more than 70 million Americans, includes 4 million disabled vets, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor, who depend on their monthly payments (reportedly averaging around $1,224) to just get by.

Some people really could use those few extra dollars. However, the vast majority of retirees and public dole receiptients Shouldn't complain.

They should have thought about more than "just getting by". SSI was never intended to retire on.

 

[Amused_despair]

Have to wonder how many lost their retirement savings in the many fiscal scandals that have happened in the last 10-20 years?

 

[Tilted]

So... are you actually trying to argue that goods and services have decreased in lock step with the prices of diesel and gasoline? If so, according to your hypothesis, the price of goods should be down approximately 40% since last year.

Funny... I don't see the change...

I don't think Hodr was suggesting that the price of goods and services decrease in lock step with fuel prices, just that some of them can be affected by fuel prices, which is true. They may still go up even though fuel prices go down or they may go down just a little while fuel prices go down significantly. There are other factors which can affect the prices of various goods and services, and of course some of those factors can have a greater effect on their prices than fuel prices do. But that doesn't change the reality that fuel prices can have an effect on the price of various things.

More importantly when it comes to the CPI-W that is used for COLAs (e.g. for Social Security benefits), fuel prices themselves factor into it directly. So even if fuel prices didn't indirectly affect the index through the prices of other goods or services, they would affect the index.

 

[Tilted]

The thing is, the data they use to BASE the cost of living may fluctuate, and it may well not reflect in the way a lot of people live. For instance, if you don't drive very much or rely on public transportation, the lowered cost of gas probably doesn't affect you that much, but things such as eggs or beef - mentioned previously - have gone way up.

I used to know the guys that computed the data for the CPI, and even they said the stuff they use would make most people shake their head.

Sure, the indexes don't precisely reflect any given person's particular situation. And they reflect the situations of some people better than they do others. They try to model the typical (or average) situation. The one used for the COLAs in question, e.g., tries to model the situation of the typical urban wage earner. It doesn't reflect as well the situation for people that are unemployed or who live in very rural areas. And even within given classifications of people, some people tend to spend more money on certain kinds of things while others tend to spend more money on other kinds of things.

For perspective though, housing is the largest part of the index and accounts for about 40% of it. That includes things such as rent (or a rent equivalency metric used for those who own their home) and electricity. Motor fuel only accounts for about 5% of it. For me that's probably too little; for others it may be too much. Food accounts for about 15% of the index.

So changes in gas prices don't really have an outsized effect on the index as a whole. If they go up a little or down a little, their effect would typically be largely drowned out by changes elsewhere, e.g., changes in rent, car prices, and health care and food costs. The only reason gas prices (and energy prices more generally) have had so much effect this this year is because they've fallen so much. Energy is something like 10% of the index, but as a broad category its pricing has fallen more than 15% YOY which is enough to completely wipe out the modest inflation (1-1/2 to 2%) found in all of the other aspects of the index combined.

 

[Tilted]

I'm not arguing the validity of the COLA measurement, but I know that fuel costs being 40% lower this year has contributed more than a 2-3% difference in my personal budget. So it's reflective of reality for me.

My understanding is that whenever the COLA count is negative they do not provide an increase, but neither do they reduce the payout. So when you have multiple years of negative COLAs as we have had recently, you are actually getting a bit of an increase (compared to the general economy) just by remaining at the same level.

Then, when the COLA count goes positive again (with respect to the now lowered level) you get paid a second time for those increases. At least this is the way the retirement expert at FEDWeek.com explains it.

Now, weather or not you agree with the method they use to create the COLA count, is another issue. I was just stating that gas is a non-negligible factor in the economy, and it doesn't seem unreasonable that a significant reduction in the cost of gas would have an effect on the count.

The price of fuel does, as you've suggested, have an indirect effect on the CPIs through its effect on the prices of other things we buy. More importantly though, the price of fuel is factored into the relevant CPIs directly. So though the prices of other things have generally gone up (even including those other things which are affected to varying degrees by fuel prices), the index as a whole is a shade below flat YOY because energy costs have fallen so much.

Also, a small clarification: Yes, if the change in the CPI-W (i.e. the average for the 3 months used - July, August, and September) is negative YOY, there just isn't a COLA for that year (really it's for the next year). Benefits aren't reduced because the change is negative, they just aren't increased. However, the base used for the following year is not adjusted to that reduced CPI-W. The base is the CPI for the last year in which a COLA was triggered. That's why in 2010 (effective at the end of 2010, though really for 2011) there wasn't an automatic COLA even though the CPI had gone up from 2009 to 2010. It was still below where it had been in 2008, which was the base for 2010 since there had been no COLA triggered in 2009.

So... CPI in year 1 is 100. CPI goes to 90 in year 2. No COLA - no increase and no decrease. CPI goes to 105 in year 3. The COLA is not 17% ( 15/90 ), instead it is 5% ( 5/100 ).

That's how the automatic COLA works anyway. Congress can, of course, provide for something different in a given year if it wants to.

 

[tommyjo]

Why is it so difficult to go to the source and learn? Is it really that much more preferable to sit at your laptop and whine, piss and moan from such positions of ignorance?

Here are the components of the inflation calculations (yes Hijinx, beef and eggs are included) http://www.bls.gov/news.release/cpi.t02.htm

Here is how SSA calculates the COLA (pretty damn simple...what is this 5th or 6th grade level math?):

A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA

http://www.socialsecurity.gov/OACT/COLA/latestCOLA.html

Here is the Federal Reserve Bank of Cleveland's Inflation Central website that covers about all you might want to know about calculating inflation: https://www.clevelandfed.org/en/our-research/inflation-central.aspx (the Cleveland Fed site has been posted on here many, many times)

 

[Hodr]

However, the base used for the following year is not adjusted to that reduced CPI-W. The base is the CPI for the last year in which a COLA was triggered. That's why in 2010 (effective at the end of 2010, though really for 2011) there wasn't an automatic COLA even though the CPI had gone up from 2009 to 2010. It was still below where it had been in 2008, which was the base for 2010 since there had been no COLA triggered in 2009.

That makes sense, and is perfectly reasonable. I have not looked in to the specifics of how the COLA is determined as I am not retired. My understanding came from some older postings on Fedweek and it may have misremembered or misunderstood the way it was represented at the time.

 

[Tilted]

September's CPI-W is out now, so it's safe to say that there won't be an automatic COLA (e.g. for Social Security) this year. September was down YOY just as July and August were.