After an 8.7% COLA for 2023, read the latest on inflation and interest rates – indicating a much lower adjustment next year.
Over 70 million Americans receive either Social Security benefits or Supplemental Security Income (SSI) payments from the Social Security Administration. This includes older folks claiming retirement benefits, people of all ages that receive disability benefits, and even some family members are eligible to receive a beneficiary’s social security. For federal retirees collecting a FERS or CSRS pension, they receive Cost-of-Living Adjustments (COLAs) as well.
CSRS, like Social Security, receives an adjustment that equals the rise of inflation at the end of a given fiscal year (September 30th) as indicated by the Consumers Price Index for Urban Wage Earners and Clerical Workers (CPI-W). FERS, on the other hand, only receives the same COLA as CSRS and Social Security if the COLA is less than 1.0%. If the CPI-W shows inflation grew between 2.0% and 3.0%, then FERS receives a flat 2.0%. If the COLA for Social Security and CSRS is 3% or higher, then FERS annuitants get the same COLA, but minus 1.0%, That is why FERS retirees saw a 7.7% COLA for 2023 while CSRS and Social Security recipients got 8.7%.
During the last 12 months, there’s been a 5.8% increase in the CPI-W, but by the time autumn rolls around, some experts are predicting the COLA could be less than 3%, possibly even less than 2%.
Out of all Americans last year, there was a 2% average increase in spending. Among just older citizens (born in 1964 or earlier), however, the increase in spending rose between 4% and 6% compared to the same timeframe last year. Interestingly, the same group of people were the ones who cut the most spending during the pandemic. This recent uptick could very well be because of the high COLA that went into effect in December 2023, but the extra spending isn’t all coming from Social Security Benefits. According to the Senior Citizen League, older Americans’ who have credit card debt that wasn’t paid off in 90 days or less went from 35% in the 3rd Quarter of Fiscal Year 2023 to 44% in the 1st Quarter of Fiscal Year 2024.
In a nutshell, higher spending exasperates rising inflation, and the Federal Reserve has been trying to combat inflation by raising interest rates. We’ll see how this all plays out, but unless the country’s economic landscape drastically changes before October, a COLA comparable to last year’s 8.7% doesn’t seem likely. Right now, between 2.0% and 5.8% are where the best estimates currently sit.
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Until Next Time,
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
After an 8.7% COLA for 2023, read the latest on inflation and interest rates – indicating a much lower adjustment next year.
Over 70 million Americans receive either Social Security benefits or Supplemental Security Income (SSI) payments from the Social Security Administration. This includes older folks claiming retirement benefits, people of all ages that receive disability benefits, and even some family members are eligible to receive a beneficiary’s social security. For federal retirees collecting a FERS or CSRS pension, they receive Cost-of-Living Adjustments (COLAs) as well.
CSRS, like Social Security, receives an adjustment that equals the rise of inflation at the end of a given fiscal year (September 30th) as indicated by the Consumers Price Index for Urban Wage Earners and Clerical Workers (CPI-W). FERS, on the other hand, only receives the same COLA as CSRS and Social Security if the COLA is less than 1.0%. If the CPI-W shows inflation grew between 2.0% and 3.0%, then FERS receives a flat 2.0%. If the COLA for Social Security and CSRS is 3% or higher, then FERS annuitants get the same COLA, but minus 1.0%, That is why FERS retirees saw a 7.7% COLA for 2023 while CSRS and Social Security recipients got 8.7%.
During the last 12 months, there’s been a 5.8% increase in the CPI-W, but by the time autumn rolls around, some experts are predicting the COLA could be less than 3%, possibly even less than 2%.
Out of all Americans last year, there was a 2% average increase in spending. Among just older citizens (born in 1964 or earlier), however, the increase in spending rose between 4% and 6% compared to the same timeframe last year. Interestingly, the same group of people were the ones who cut the most spending during the pandemic. This recent uptick could very well be because of the high COLA that went into effect in December 2023, but the extra spending isn’t all coming from Social Security Benefits. According to the Senior Citizen League, older Americans’ who have credit card debt that wasn’t paid off in 90 days or less went from 35% in the 3rd Quarter of Fiscal Year 2023 to 44% in the 1st Quarter of Fiscal Year 2024.
In a nutshell, higher spending exasperates rising inflation, and the Federal Reserve has been trying to combat inflation by raising interest rates. We’ll see how this all plays out, but unless the country’s economic landscape drastically changes before October, a COLA comparable to last year’s 8.7% doesn’t seem likely. Right now, between 2.0% and 5.8% are where the best estimates currently sit.
—-
Until Next Time,
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
The FedLife Podcast is your in-depth, biweekly deep dive into the world of federal benefits and retirement planning. Hosted by federal benefits expert Ed Zurndorfer and Dan Sipe of Serving Those Who Serve, each 30-minute episode unpacks the complexities of FERS and CSRS retirement, FEHB and Medicare, survivor benefits, tax planning, and more. Designed for federal employees and retirees who want more than just the basics, FedLife goes beyond the headlines to explore the rules, nuances, and strategies that can make a meaningful difference in your retirement. Remember: it’s your Fed life, make it a great one.
The Fed15 Podcast is your weekly 15(ish)-minute briefing on federal benefits and financial planning, built specifically for federal employees and retirees. Hosted by Dan Sipe and Katelyn Murray of Serving Those Who Serve, each episode delivers clear, actionable guidance on topics like FERS and CSRS retirement, TSP strategies, FEHB, survivor benefits, tax planning, and more! Whether you’re five years from retirement or already there, The Fed15 helps you cut through the noise, avoid costly mistakes, and make confident decisions about your federal benefits.
