Each year, the Social Security Administration evaluates the inflation rate, and often adjusts Social Security benefits according to increases in the cost of living. The decisions is based upon the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the prices of various goods and services. A rise in prices translates into a rise in the cost of living, which is then used to calculate an increase in Social Security checks for retirees and disabled people.
For the third straight year, the Cost of Living Adjustment (COLA) for 2015 will remain at historically low levels. Estimated to be 1.7 percent, the upcoming COLA reflects the very low levels of inflation we’ve been seeing overall in the economy (www.ssa.gov/news/cola).
For a typical retiree drawing $1,300 per month in benefits, this increase will net them an extra 22 dollars on each check, beginning with January’s check.
Critics of the formula believe the CPI-W is not an accurate measure of the prices which most affect senior citizens. They argue that the goods and services purchased by the average urban wage earner are not purchases in equal proportions within the retirement community. For example, older Americans are much more likely to spend a larger percentage of their income on prescription medications.
Whether or not you agree with the formula used to calculate COLA, remember that Social Security was never meant to be your sole source of income in retirement. If you’re planning to retire soon, or have already retired, it’s important to remember the role of sound retirement income planning for this stage of your life. Talk to your insurance agent or financial advisor about a reasonable retirement budget, and make a plan to keep you financially confident about your retirement savings strategy even when cost of living increases to Social Security checks may seem small.
This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.