Everything you ever wanted to know about COLA

COLAs, or Cost of Living Adjustments, are designed to help people, especially seniors who rely on Social Security, keep pace with inflation. COLA is actually a percentage which is applied each year to each Social Security recipient’s benefit amount, resulting in an increase in their benefit payment – maybe. Sometimes, a COLA isn’t even granted if changes to a specific index of consumer prices aren’t high enough. And if there is a rise in the Medicare Part B premium, all or part of the COLA increase may be eaten up by that. All of which means that COLA increases may not be successfully keeping seniors apace with inflation after all. This Motley Fool article by Christy Bieber offers a very comprehensive description of how the whole COLA computation works, the index used to compute COLA, and what happens to the COLA increase when the Medicare premium rises. However, the author advocates for a switch to an experimental Consumer Price Index (CPI) known as the “CPI-E” (a special CPI index for the elderly) which could, according to some other analyses, leave seniors with a smaller COLA increase rather than a larger one. Click here to find out everything you ever wanted to know about COLA.

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