The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.9 percent over the last 12 months to an index level of 246.336 (1982-84=100). For the month of August, the index increased 0.1 percent prior to seasonal adjustment.
The third quarter of 2017 (July, August, September) will be used as the base quarter to determine the 2019 federal retiree (CSRS and FERS) and Social Security COLAs. The August 2018 CPI-W figure was 2.8 percent higher than the average CPI-W for the third quarter of 2017 (which was 239.668). Please see table below.
How was this calculated?
The amount of a COLA is determined by the percent change in the base quarter price index from the previous year to the year in which the COLA is to become effective ( the final number is adjusted to nearest 1/10 of 1 percent).
For August 2018, the trend toward a 2019 COLA is:
(246.336 – 239.668) / 239.668 x 100 = 2.78% (adjusted to the nearest 1/10 of 1 percent = 2.8%)
The Consumer Price Index for September 2018 is scheduled to be released on Thursday, October 11, 2018, at 8:30 a.m. (EDT).
Trend Toward 2019 COLA Adjustment (FERS / CSRS / Social Security)
- Federal Employee Pay Raises vs. Retiree COLAs
- Guide to Federal Retiree COLAs: What Are They and How Are They Calculated?
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:
If the CSRS COLA is…
Then the FERS COLA is…
Up to 2.0%
2.0% to 3.0%
Same as CSRS COLA
CSRS COLA minus 1.0%
2018 Federal Retiree COLA
The 2018 cost-of-living adjustment (COLA) for Social Security recipients and annuitants in both the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS) will increase 2.0 percent, the Social Security Administration announced October 13, 2017.
The 2018 federal retiree COLA is much larger than last year’s 0.3 percent increase and the zero COLA in 2016. It’s also the first year the CSRS and FERS COLA has been 2.0 percent or more since 2012. (see Federal Retiree COLA History)
NARFE: “Reinforces Need for a New COLA Formula”
October 13, 2017
“Following two years of no and low cost-of-living adjustments (COLAs), today’s announcement was eagerly awaited by millions of Americans who rely on the increase to keep up with the rising prices for food, housing, gas and medical care,” said Richard Thissen, president of the National Active and Retired Federal Employees Association (NARFE). “Unfortunately, the 2.0 percent COLA provides only partial relief and serves as a reminder that our method for calculating the increasing cost of goods and services is out of sync with the reality faced by federal annuitants, Social Security recipients and military retirees. Our nation’s seniors spend more than twice as much on medical care than the population measured by the current formula to calculate COLAs, the CPI-W. Congress must act to implement a new formula that adequately measures costs incurred by seniors.”
“The COLA is outpaced by the average 6.1 percent increase in health care premiums for federal retirees in 2018,” Thissen continued. On top of this, Medicare premiums increased disproportionately for most federal annuitants during the last two years, and long-term care premiums sharply increased by 83 percent, on average. A new a cost-of-living formula that doesn’t force these Americans to take one step forward, then two steps back is long overdue.”
NARFE’s president also said: “Today’s COLA announcement highlights why Congress should require use of the CPI-E (Consumer Price Index for the elderly) as the measurement for setting COLAs. It is crystal clear that the current formula does not accurately reflect how seniors spend their limited annuities.”
Some members of Congress have proposed legislation that would would require Social Security programs and many federal retirement programs to use the Consumer Price Index for the Elderly, or CPI-E, to calculate cost of living adjustments and thus ensure seniors’ benefits are not diminished over time. The Bureau of Labor Statistics calculates the experimental CPI-E by using households whose reference person or spouse is 62 years of age or older. NARFE supports a switch to the CPI-E believing it would result in higher COLAs, and opposes a switch to the Chained CPI, which would result in lower COLAs.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700 from $127,200. Of the estimated 175 million workers who will pay Social Security taxes in 2018, about 12 million will pay more because of the increase in the taxable maximum.