The 2022 cost-of-living adjustment (COLA) could be much larger than in previous years for Civil Service Retirement System (CSRS) annuities, Federal Employees Retirement System (FERS) annuities and Social Security benefits.
The Senior Citizens League (TSCL), a nonpartisan senior group, released its first 2022 COLA estimate this month indicating there could be a 4.7% increase to benefits starting next January. The annual COLA increase for 2021 was 1.3 percent.
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The higher COLA would be welcome news to retirees. A new study from TSCL found that consumer price data through March 2021 indicate that Social Security benefits have lost 30 percent of their buying power and “that loss of buying power could grow deeper in 2021, should the current inflationary trends continue,” said Mary Johnson, a Social Security policy analyst for TSCL.
“While the lack of inflation in 2020 did improve the buying power of Social Security benefits by 2 percentage points through the month of January 2021 — from a loss in buying power of 30 percent to a loss of 28 percent — that improvement was completely wiped out by soaring inflation in February and March of this year,” Johnson said.
The group’s 2022 COLA forecast of 4.7% is based on consumer price index data through April 2021. If this figure holds, it would be the highest COLA since 2009 when beneficiaries received a 5.8% increase.
The final amount of the 2022 COLA for FERS, CSRS and Social Security will not be determined until living costs for July, August and September are tallied. That final figure will be announced in mid-October.
The Consumer Price Index for May 2021 is scheduled to be released on June 10, 2021. My Federal Retirement provides an update each month on the trending 2022 COLA estimate.
- SEE: 2022 COLA Watch
How is a COLA calculated?
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
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.
How is the difference between the CSRS COLA and FERS COLA determined?
The following table summarizes the FERS COLA in relation to the CSRS COLA:
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