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How this event can lift Social Security’s COLA in 2020

Hurricane Irma, Hurrican Sandy and Social Security

More than 63 million Americans receive Social Security benefit checks each month. While most of these social security beneficiaries are retired workers, this makes up every 1 in 6 Americans who rely on this monthly social security benefit system. For many people receiving the benefits, this implies more than half of their monthly incomes.

No wonder why almost all of these folks are glued to their news screens to look for the COLA announcements made by the Social Security Administration each year. The SSA decides what the upcoming year's cost-of-living would be. So the COLA announcement which raised a whopping 2.8% ifor the fiscal year of 2019, increased an average of $39 or $468 per year for an average social security beneficiary. The amount was raised from $1422 in December 2018 to $1461 from January 2019.

The SSA's COLA calculation is tricky

AARP Chief Executive Officer Jo Ann Jenkins said: "The COLA is imperatively important for the tens of millions of families who depend largely on Social Security for most of their income, many of whom may have lost the ground during the Great Recession."

In simple terms, COLA is Social Security's method of adjusting the benefits amount to the rising inflation rates of the market. It makes a huge difference to the millions of Social Security beneficiaries and their families who depend on their earned, modest benefits.

Prior to 1975, the adjustments in Social Security benefits had to be approves by special sessions of the Congress. This led to long delays in approval time where the benefits remained static until the decision remained pending. Fortunately, this is no longer the case today. Since 1975, the Social Security's COLA had been tethered to the Consumer Price Index for Urban Wage Earnings and Clerical Workers, or CPI-W, allowing for annual inflationary increases.

Also, like most Bureau of Labor Statistics, BLS price measurements, the CPI-W uses a handful of markers to account for inflationary adjustments in COLA. It ranges from Shelter, that makes up 1/3rd of the total CPI-W weighing, followed by electricity, gasoline and fuel oils making up 8% of the CPI-W weighing. So as the price of these household necessities rise, the Bureau of Statistics measure this change and report it in a digestible manner, known as the CPI-W.

But, that's not it. The Social Security's COLA is a very tricky calculation: It basically takes into account only 3 months out of a year. This means that even though the Bureau of Labor Statistics releases CPI-W data for every month of the year, the Social Security uses only the data for the three months from July to September. If the average inflation rates have been risen as compared to the previous year, then the Social Security beneficiaries are more likely to get an increase in their benefit amounts. Fortunately, in the rare cases where the prices may actually decrease from the previous year, also known as deflation, then the benefits will remain static instead of being decreased. Though it only happened in three years since 1975, i.e., 2010, 2011 and 2016.

So, with that said, this implies that we are in the first of the three months that actually matter for Social Security Administration to decide the COLA for year 2020.

Timing matters

Here's the catch about utilizing price rates from the BLS that make it unique. It also tends to be affected by the weather conditions. How's that so, you ask?

Statistically, the third quarter of the year tends to be the height of the hurricane season, with most storms thankfully staying out to sea and away from land. However, this month, Barry, the predicted storm of the 2019 hurricane season, made its presence felt in the Gulf of Mexico.

As reported by CNBC, many of the leading energy production industries have decided to halt productions until the storm, Barry has as well passed. This includes shutting down oil refineries and natural gas production capabilities upto 59% and 49% respectively. So how does it affect COLA?

Past year, in 2018, the Social Security Administration estimated inflation to be closer to 1.5%. However, with the heavy destructive and disruptive disasters such as hurricane Harvey and Irma, the energy industries were highly ravaged, halting energy productions upto 65%. This raised the inflation prices higher than predicted; hence the COLA rose to a 2.8% instead of the predicted 1.5%.

Since the hurricane Harvey and Irma had a significant effect on lifting the Social Security's COLA for the year 2018, it could as well raise further granted the statistical predictions for the upcoming disruption from hurricane Barry in the coming three months.

No matter how terrible the irony be, hurricanes tend to be a sign of good omens for the Social Security's COLA. However, even if the Social Security's COLA 2020 gets a lift from the inflation, it doesn't necessarily imply that retired workers will benefit any more than they did before. This is because the rise in benefits is basically due to the rise in inflations so the cost of spending will be adjusted to the raised cost of the receivable benefits.

No matter the rate of COLA increase in 2020, you can still maximize your Social Security Income by taking advantage of the $16,728 retiree bonus. We think we can help you maximize your benefits so you could retire with the peace of mind that you deserve.

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Friday, 01 December 2023