The Calculation: Why The Social Security COLA Will Sink In 2020

Summary

  • The Social Security Administration uses a complex formula, and an unusual inflation index, to set the annual COLA increase.
  • Once again, the Social Security COLA looks like it will be lower than overall U.S. inflation. (That wasn’t true for the 2019 increase, however.).
  • At this point, a COLA increase in the range of 1.6% to 1.8% looks likely, but a lot can change in the only months that matter: July, August and September.

SSAIn its annual report issued in April, the Social Security Administration projected a likely 1.8% cost-of-living-adjustment (COLA) for Social Security recipients in 2020. That looks like a reasonable estimate, but possibly a bit high.

The COLA formula is ridiculously complex and little understood. Is it related to U.S. inflation? Yes, but not the inflation index you hear about each month. Does it reflect 12 months of U.S. inflation? Not really. Does it underestimate actual U.S. inflation? Most years, yes.

Read my full analysis on SeekingAlpha.com

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About Tipswatch

Author of Tipswatch.com blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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