Federal retirees’ 2023 COLA will be the highest since 1981.

Inflation is one of the most pressing problems facing Americans today and has been rising since 2022. The Bureau of Labor Statistics (BLS) tracks inflation and automatically calculates the annual COLA (cost-of-living adjustment).

Those retired or on the verge of retirement frequently follow the monthly inflation figures since they affect the yearly COLA for federal retirees and Social Security income. The CPI-W index is used to determine the COLA increase. On October 13, 2022, the last piece of the CPI-W data puzzle was made available. Here’s everything you should know about the 2023 COLA.

2023 would see the largest COLA since 1981

The Consumer Price Index for all Urban Consumers (CPI-U) showed an increase in inflation of 0.4% in September, according to the BLS’s most recent 2022 inflation update. The BLS data shows that the all-items index—a distinct indicator from the CPI-U—rose 8.2% over the previous 12 months.

Federal retirees earned a 5.9% rise in Social Security payments and CSRS annuities and a 4.9% increase for FERS annuities beginning in January 2022. This was the biggest COLA increase in 40 years at the time.

The index determined by the BLS that many people, including retirees, are most interested in is the CPI-W, which is used to determine the COLA for 2023 Social Security benefits. This index rose by 8.5% in the last year.

• It is currently at a 291.854 index level.

The average Consumer Price Index (CPI) for the third quarter of 2021 was 268.421. This is noteworthy because the yearly COLA is computed by comparing the changes in the CPI-W from one year to another using the average of July, August, and September (third-quarter months). This shows an increase of 8.7% over the average for the third quarter of the previous year.

The 1980 COLA increase of 14.3% was the highest in recent decades. The COLA rise in 2023 will be the highest since 1981 when it was 11.2%.

Compared to the data presented, inflation was 10.3% in 1981, and the yearly COLA was 11.2%. However, to be fair to previous President Carter, who was held responsible for much of the period’s chronic inflation and who, in large part as a result of that inflation, lost his bid for a second term, the way inflation is calculated has changed.

If the method of calculation had stayed the same, the current trend in inflation might be more significant than it was during the Carter administration. In general, reported inflation has decreased as a result of the adjustments in inflation calculations.

The updated methodology altered the CPI’s original purpose of determining the cost of living necessary to maintain a given living level. The more recent approach to calculating looks at the cost of living rather than price growth.

One site that tracks this data estimates that the current inflation rate would be around 17% if the earlier calculation technique had been applied.

• Are you unhappy with the COLA Increase?

Inflation in 2022 has been consistently high. Since early estimates in 2022 were 11% or higher, some retirees may be dismayed to discover downward changes to their 2023 COLA forecasts. But that sad news does have a bright side.

COLAs do not entirely offset inflation. The result is that a retired person’s income loses purchasing power over time. Social Security payouts have lost more than 40% of their purchasing value since 2000.

Financially, lower inflation and lower COLAs typically do a better job retaining the purchasing power of a retired person since COLAs do not entirely replace the lost purchasing power of retirement income. Despite significant COLA payments being made in reaction to high inflation, each dollar is now worth less than it did in years past. In light of this, seniors might likely consider estimates of declining COLA estimates as positive news.

Why Your Retirement System Has an Impact on Your COLA in 2023

The retirement benefits of FERS-retired federal employees will be 1% lower in 2023 than those of CSRS-retired personnel. Congress decided that a lower COLA than the one offered to CSRS employees was justified for FERS employees because of the benefits of TSP investments, including a matching sum provided by the federal government for an employee who invests in the TSP, and the additional income provided during retirement by the Social Security system.

Contact Information:
Email: [email protected]
Phone: 9568933225

Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.

In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.

His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.