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Let the SS COLA Projections for 2022 Begin

https://www.cnbc.com/2021/06/16/social-security-cola-for-2022-could-be-higher-based-on-consumer-prices.html

Excerpt:

Rising consumer costs have helped push the latest estimate for next year’s Social Security cost-of-living adjustment to 5.3%.

Comments

  • I would bet serious money against that.
  • edited June 18
    Agreed. It's likely going to be slightly-to-moderately higher.

    As noted here, the annual COLA bump is announced in October using the following methodology. It's all about the 3rd Qtr YOY CPI-W change.

    https://www.investopedia.com/social-security-2021-cola-of-1-3-announced-5081979

    Excerpt:

    COLA Specifics

    The annual COLA adjustment, which is designed to help benefits keep pace with inflation, is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as calculated by the Bureau of Labor Statistics (BLS). If the CPI-W increases more than 0.1% year-over-year between the third quarter of the previous year and the third quarter of the current year, Social Security will raise benefits by the same amount. The exact calculation is complicated and may result in a new benefit amount that is slightly different from the amount you get by multiplying the new COLA by your current ben

    Scoring at home, much of the increase is already baked in, the clock is about to run out and the inflation trend is higher/higher than expected, thus I'd be very surprised if the 2022 COLA is much less than the current projection, and as I said, likely higher than this projection.

    That opinion and ten bucks will get you a Starbucks.
  • Is this the same calculation used to determine the new IRMAA brackets for Medicare premiums?
    David
  • dstone42 said:

    Is this the same calculation used to determine the new IRMAA brackets for Medicare premiums?
    David

    Several differences. Whether the numeric difference is significant I leave for you to decide.

    SS: based on CPU-W
    IRMAA: based on CPI-U

    SS: Y/Y comparison period through end of September
    IRMAA: Y/Y comparison period through end of August

    SS: compares average of Q3 vs Q3 of previous year (3 month averages)
    IRMAA: compares average of 12 months (ending Aug) with average of previous 12 months

    SS: rounded to nearest 0.1%
    IRMAA: rounded to nearest $1,000

    SS: never a negative adjustment
    IRMAA: threshold can adjust downward, but not below the 2018/2019 amount of $85K/$170K

    (this is my read on how the IRMAA calculation is done - as an increase relative to the 2018 baseline; many others believe the threshold cannot be reduced, say from $88K currently to $87K)

    https://www.ssa.gov/oact/cola/latestCOLA.html
    https://www.law.cornell.edu/uscode/text/42/1395r#i_4_C_ii_II
  • edited July 15
    From the article:
    ....one advocacy group for senior citizens is projecting a 6.1% increase in 2022 due to surging inflation.

    That would be the biggest cost-of-living adjustment (COLA) hike since 1983.

    image
    Link to Another COLA Projection
  • How is that possible when 1990 had a 5.4% increase?
  • edited July 15
    @Mark I corrected the formatting for my prior comment. Hopefully it reads more clearly now. The last increase greater than 6.1% was in 1982 at 7.4%
  • that would be nuts, quite aside from my losing 'serious moneys'
  • edited July 15
    Good grief.

    davor originally quoted the article he linked that incorrectly states,
    "That would be the biggest cost-of-living adjustment (COLA) hike since 1983."

    The correct statement in that regard is,
    "The projected increase of 6.1% for 2022 would be the biggest cost-of-living adjustment (COLA) hike since the 5.8% increase in 2008. The last increase higher than the 2022 projected increase was the 7.4% increase in 1982."

    And no, based on the posts I've read here, I would NOT have hired anyone commenting on this thread except msf to any of my former audit departments.

    Another recent/worthy article on the topic:
    https://www.cnbc.com/2021/07/14/social-security-cost-of-living-increase-for-2022-may-be-largest-in-decades.html
  • It's often argued that SS COLA should be based on CPI-E rather than CPI-W. That's an argument that cuts both ways.

    The latest (Dec 2020) relative weightings of the different basket components of CPI-E and CPI-W can be found here: https://www.bls.gov/cpi/tables/relative-importance/home.htm

    Specifically: CPI-W (HTML) and CPI-E (XML)

    The linked piece projecting a 6.1% increase specifically highlights gasoline and groceries as basket categories with rapidly increasing prices. These are two categories that are weighted less heavily in CPI-E than CPI-W. Gasoline comprises only 2.142% of the CPI-E basket vs. 3.613% of the CPI-W basket; groceries (food at home) comprise 7.402% of CPI-E vs. 8.962% of CPI-W.

    More broadly, the encompassing categories with rapidly rising prices are weighted less heavily in CPI-E than in CPI-W:
    Transportation, 12.967% vs 16.853%, and
    Food & Beverages, 13.522% vs. 16.650%.

    This underweighting in CPI-E of rapidly rising basket categories means that the rise in CPI-E will likely turn out to be significantly less than CPI-W.

    What gets weighted more heavily in CPI-E are the broad areas of Medical Care (12.202% vs. 7.594%) and Housing (46.572% vs. 40.874%). These are basket components that have recently experienced much lower inflation.

    This overweighting in CPI-E of slower rising basket categories again means that CPI-E will likely be found to have risen significantly less than CPI-W.


    The Fed graph below shows Y/Y percentage increases by month for medical (blue) and owner equivalent rent (brown), which is the majority component of housing. The last points on the graph represent Y/Y for June 2021/June 2020. They are 0.433% and 2.343%. Nowhere near 6%.

    image
    (You can reconstruct this graph by starting here and editing, changing time periods and adding lines.)

    Note that increase in housing expenses is not the same as increase in the price of homes, which is a capital expense. "For the typical homeowner, their housing costs likely haven’t changed too much over the past year."

    https://www.marketwatch.com/story/an-inflation-storm-is-coming-for-the-u-s-housing-market-11623419869
  • This M* article looks at current projections and remaining uncertainties that will impact the October COLA announcement and also considers potential changes to the Medicaire Part B premium:

    Social Security Cost-of-Living Adjustment Looks Uncertain
  • beebee
    edited July 17
    Here the Buying Power Study referenced in @davfor link and an image. Staying ahead of inflation when you no longer enjoy wage inflation (a raise from work income) is probably why Wade Pfau and Micheal Kitces recommend a increasing equity glide path from the date of retirement forward. Stocks stay ahead of inflation over the long term.

    Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?
    should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better

    Social Security Buying Power
    temporary-improvement-in-social-security-buying-power-wiped-out-by-soaring-inflation

    image

  • SHOCKING CHART !!!
    Derf
  • edited July 17
    One thought on @bee 's comment. I finally realized I will not live forever as I looked at turning 70. After considering reasonable life cycle needs and set-aside goals for relatives and non-profits, I decided it was time to loosen up a bit on my equity side limit (mostly through more dividend producing equity investments) and to also loosen up a little bit on my withdrawal rate. Will digest changes made for a while. Don't know if I will increase equity percent further later but am comfortable with the increase implemented in 2019-2020. (I have enough flexibility to substantially decrease withdrawal rate if market conditions dictate this is advisable.)
  • Further Reading on:
    Reducing Retirement Risk with a Rising Equity Glidepath

    Rising Equity Glidepath
  • msf
    edited July 17
    What's shocking about the table is that they would not only cherry pick data, but double and triple count it. And not even label entries the same as in the study. And did you notice that this list of top ten costs has eleven items (see #8)? Makes one wonder about the basic arithmetic in the study.

    #6, "Total medical out-of-pocket costs". In the study, that's called "Total medical expenses, not including premiums." Either way, one would naturally expect that to represent, well, everything that a "typical" senior paid for health care (doctors, hospitals, pharmaceuticals, durable (and not so durable) medical equipment, etc.). Everything outside of insurance premiums; at least that's what "out-of-pocket" usually means.

    So many things are wrong with this line:
    • If this counts all medical expenses other than premiums, then including line 1, "prescription drug ... out-of-pocket" is a double count.
    • In reality, this line supposedly represents how much the government pays for Medicare expenses. So it's what seniors don't pay. According to the study, these figures come from the 2020 Medicare Trustee report, Table V.D1, p. 118 (pdf p.124). Further, while the 2020 figure matches the Trustee report, the 2000 figure doesn't quite.
    • If one really compares Medicare out-of-pocket costs with Medicare premiums, they're much closer to 1-to-1 (2-1 if one excludes Medigap) than the 10-to-1 suggested by lines 2 and 6 in the top ten table). Here's a KFF graph from 2016 with a pie chart comparing the two. I doubt the ratios have shifted radically since then, especially given the way premiums are set.
      image
      https://www.kff.org/medicare/issue-brief/how-much-do-medicare-beneficiaries-spend-out-of-pocket-on-health-care/
    I'll take KFF any day over an advocacy group that doesn't explain how it comes up with its numbers and misrepresents what they mean.

    In their supposed methodology document, the Senior Citizens League does not provide the criteria for selecting the 39 "typical" categories.

    In saying that it "uses somewhat similar weightings" to CPI-E, it fails to explain why it deviates from the CPI-E weightings, let alone how it calculates the deviations. While it gives you broad categories weightings (e.g. it weights medical 14.1% vs. CPI-E's 12.2%), it doesn't give you a breakdown of weights for the various medical components like the aforementioned lines #2 (Part B premiums) and #1 (prescription drugs), or its several other "typical" medical categories.

    But the worst part, the very worst, is that it prices 10 pound of potatoes (line item #7) at Sam's Club in Charlottesville Virginia. Now I ask you, how many seniors belong to Sam's Club and buy 10 pound sacks of potatoes at at time? :-)
  • Seems to me that you're kind of nitpicking that table. The colors are pretty nice... (kind of patriotic), the font looks OK, and all of the lines are straight.
  • https://www.cnbc.com/2019/02/11/8-foods-not-to-buy-at-costco-according-to-experts.html
    I'm still looking for that answer, how many seniors belong to Sam's Club and buy 10 pound sacks of potatoes at at time?
    Derf
  • Anyone needing an "expert" to tell them what not to buy at Costco shouldn't even be shopping there.
  • @Old_Joe : You maybe right, but as the OLD saying goes, They walk among us. Bakers two at a time, otherwise 5# bags. It's potato salad season !!
    Stay Kool if You can, Derf
  • I will admit to buying our BBQ charcoal there... two 18lb bags taped together. I have to cut the tape in order to even lift the damned things.
  • +1 Old Joe But at least you don't have to invest in a weight set !
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