The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.4 percent over the last 12 months to an index level of 253.597 (1982-84=100). according to the Bureau of Labor Statistics.
For the month of August 2020, the index rose 0.4 percent prior to seasonal adjustment. The chart below indicates the latest trend toward determining the 2021 COLA:
Trend Toward 2021 COLA
(FERS / CSRS / Social Security)
How was this calculated?
Each year’s COLA is determined by comparing the change in the CPI-W from year to year, based on the average of the third-quarter months of July, August and September. The average CPI-W for the third quarter of 2019 was 250.200
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 2020, the trend toward a 2021 COLA is:
(253.597 – 250.200) / 250.200 x 100 = 1.357 (adjusted to the nearest 1/10 of 1 percent = 1.4%)
The Consumer Price Index for September 2020 is scheduled to be released on Tuesday, October 13, 2020 at 8:30 a.m. (ET).
The official 2021 COLA will be released by the Social Security Administration (SSA) in mid-October. The SSA will calculate the percent change between average prices in the third quarter of the current year (ending on Sept. 30) with the third quarter of the previous year.
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% Above 3.0% |
Same as CSRS COLA 2.0% CSRS COLA minus 1.0% |
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.
SEE ALSO:
- Federal Employee Pay Raises vs. Retiree COLAs
- Guide to Federal Retiree COLAs: What Are They and How Are They Calculated?
2020 COLA Announced
October 10, 2019
The 2020 cost-of-living adjustment (COLA) will be 1.6 percent for Civil Service Retirement System (CSRS) annuities, Federal Employees Retirement System (FERS) annuities and Social Security benefits.
This is a lower federal retiree COLA than last year when CSRS annuitants received 2.8 percent and FERS annuitants received 2 percent. (See also: COLA history)
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index (CPI-W) as determined by the Department of Labor’s Bureau of Labor Statistics (BLS).
NARFE Urges Use of CPI-E to Calculate Federal Retiree COLA
In response to the 2020 cost-of-living adjustment (COLA) for federal retirement annuities and Social Security benefits announced today by the Bureau of Labor Statistics, National Active and Retired Federal Employees Association (NARFE) National President Ken Thomas issued the following statement:
“The 2020 COLA of 1.6 percent will do little, if anything, to help the millions of federal retirees who spent their working years serving the public. The same people face a 5.6 percent average increase next year to health care insurance premiums in the Federal Employees Health Benefits (FEHB) program, alone. Add to that the fact that retirees disproportionately incur greater medical costs than any other segment of the population. For years, NARFE has urged Congress to address this problem by passing legislation requiring the Bureau of Labor Statistic (BLS) to calculate COLAs based on the consumer price index for the elderly (CPI-E) instead of the consumer price index for workers (CPI-W). Looking beyond calculations, it’s imperative to remember that these are real people – not numbers on a sheet of paper – who are already financially struggling, and yet, year after year, they watch their retirement incomes fade away because Congress has done nothing.
“I urge Congress to pass legislation requiring COLAs for federal retirement annuities, Social Security recipients and veterans to be based on the more accurate CPI-E measurement. That’s not just common sense; it makes smart financial sense, too.”