What is a COLA & Its impact On Social Security
What is a COLA How Does It Impact My Social Security?
Cost-of-living adjustments (COLAs) can refer to adjustments employers build into salary and benefits packages, keeping in step with inflation rates. It can also refer to annual adjustments made to Social Security and Supplemental Security Income, the typical percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for a particular period of time. The cost of living varies by city, state, population density, etc.
How COLA is Calculated
Cost of living refers to the amount of money needed to maintain a standard of living. This includes essentials like housing, utilities, health care, food, clothing, taxes, etc. While there is no official measurement system for cost of living, the Bureau of Labor Statistics (BLS) measures price inflation with the Consumer Price Index (CPI). The CPI measures fluctuations of consumer goods and services. Its methodology has changed over time and there has been some debate
about its reliability of actual inflation levels. Yet, employers offer COLAs to attract and retain valuable employees.
New COLA Info for 2021
Social Security and Supplemental Security Income (SSI) benefits will increase by 1.3% for approximately 70 million Americans in 2021. This COLA adjustment began in December with increased payments to over 8 million SSI beneficiaries and in January to more than 64 million Social Security beneficiaries. Maximum earnings subject to the Social Security tax increases to $142,800. The earnings limit for workers younger than full retirement age increases to $18,960, while people reaching their full retirement age this year will increase to $50,520. There is no limit on earnings for workers who are of full retirement age or older for the entire year.
COLA and Retirement Income
For retirees living on a fixed income, inflation and increasing costs for goods and services can severely eat away pension benefits and investment income. Some forms of retirement fixed income will increase with the cost of living because of a COLA. Income from either COLA-based or COLA-indexed pensions or government benefits for retirees like Social Security will keep their purchasing power as inflation increases with the proper COLA formula.
At Federal Educators, we can help you better understand COLAs and other retirement benefits. Give us a call and request your free analysis at 866-226-8160.