{"id":335381,"date":"2021-09-06T02:28:00","date_gmt":"2021-09-05T23:28:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/retirement-weekly-the-social-security-cola-and-inflation-illusion\/"},"modified":"2021-09-06T02:28:00","modified_gmt":"2021-09-05T23:28:00","slug":"retirement-weekly-the-social-security-cola-and-inflation-illusion","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/retirement-weekly-the-social-security-cola-and-inflation-illusion\/","title":{"rendered":"#Retirement Weekly: The Social Security COLA and \u2018inflation illusion\u2019"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a33736ed92d8\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a33736ed92d8\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/retirement-weekly-the-social-security-cola-and-inflation-illusion\/#Next_years_Social_Security_benefits_are_likely_to_go_up_by_more_than_any_other_year_since_1982\" >Next year\u2019s Social Security benefits are likely to go up by more than any other year since 1982<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/retirement-weekly-the-social-security-cola-and-inflation-illusion\/#Mark_Hulbert\" >Mark Hulbert<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#Retirement Weekly: The <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Social<\/a> Security COLA and \u2018inflation illusion\u2019<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"Next_years_Social_Security_benefits_are_likely_to_go_up_by_more_than_any_other_year_since_1982\"><\/span>\n  Next year\u2019s Social Security benefits are likely to go up by more than any other year since 1982<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\" role=\"region\" aria-label=\"article body\">\n<div class=\"article__side\">\n<div class=\"container--sticky not-active\">\n<div id=\"cx-next\" data-nosnippet>\n              <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000397290\" role=\"document\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div data-layout=\"\n                inline\" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetArticleReader\n              \n              inline\n  article__inset\n          article__inset--type-InsetArticleReader\n              article__inset--inline\n  \"><\/p>\n<div class=\"media-object-article-reader\">\n<div class=\"audioplayer\" data-sbid=\"WP-MKTW-0000397290\" role=\"region\" aria-label=\"Listen to Article\" tabindex=\"-1\" id=\"articlereader\" data-show-title=\"false\" data-theme=\"wsj-article-reader\" data-show-header=\"false\" data-show-subscribe=\"false\" data-ads-enabled=\"true\" data-save-publication=\"false\">\n        <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       Monthly Social Security benefit checks will likely increase next year by the most they have in 40 years.<\/p>\n<p> Many retirees are welcoming this <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">news<\/a>, as they have been complaining for years that Social Security\u2019s annual cost of living adjustments have been too small. The COLA that went into effect in January of this year, for example, was just 1.3%.<\/p>\n<div class=\"paywall\">\n       Their reaction betrays a fundamental misunderstanding about what the COLA represents, however. Economists refer to this misunderstanding as \u201cinflation illusion\u201d or \u201cmoney illusion,\u201d and it leads to no end of confusion.<\/p>\n<p>That\u2019s because the Social Security COLA\u2014in theory\u2014leaves you neither no better nor no worse off than you were before. When inflation is high, you need a bigger COLA to make you whole again. In that event you\u2019re no richer than you would have been in a low-inflation environment with a correspondingly low COLA.<\/p>\n<p>To be sure, we don\u2019t yet know for sure what the Social Security COLA will be for 2022, since it is based on the 12-month inflation rate through the 3rd quarter of this year. That means the precise COLA won\u2019t be known until the September inflation numbers are released, which is scheduled for Oct. 13. But Alicia Munnell, director for the Center for Retirement Research at Boston College, estimates it will be 6%. If so, the COLA will be the highest since 1982\u2019s 7.4%.<\/p>\n<p><strong>Different inflation measures<\/strong><\/p>\n<p>In theory, therefore, there\u2019s no reason why the bigger COLA this year should make you any h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ier than last year\u2019s much smaller COLA.<\/p>\n<p>Theory and practice don\u2019t always coincide, of course. In practice, the COLA can leave you worse off than before if the inflation measure on which the COLA is based is flawed. Though a full treatment of the pros and cons of different inflation measures is beyond the scope of this column, here\u2019s a quick review of a few of the leading candidates for what Social Security might use:<\/p>\n<p><strong>\u2022 CPI-W.<\/strong> This is the version that the Social Security Administration, by law, is required to use currently. It is known formally as the \u201cConsumer Price Index for All Urban Wage Earners and Clerical Workers\u201d (CPI-W), and it is slightly different than the headline CPI number you see reported each month, which technically is the \u201cConsumer Price Index for All Urban Consumers\u201d (CPI-U). Over the last couple of decades, the CPI-W has risen at a slightly higher pace than the CPI-U\u2014by just 0.1 of an annualized percentage point.<\/p>\n<p><strong>\u2022 CPI-E. <\/strong>This stands for \u201cConsumer Price Index for The Elderly,\u201d and the SSA calculates it by taking into account the different spending habits of the typical elderly person. Over the last four decades, the CPI-E has appreciated at a 0.2 annualized percentage point faster pace than CPI-W. Though many in Congress have introduced legislation requiring the SSA to set the COLA using the CPI-E, Munnell for one argues it may not be worth the trouble. That\u2019s because most of the historical difference between the CPI-E and the CPI-W traces to the prior through 2002; since then, she notes, there has been virtually no difference.<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p><strong>\u2022 Covid-CPI.<\/strong> As I noted a year ago, some believe that the COVID-19 pandemic has made the CPI-U and CPI-W particularly poor reflections of true inflation. One who makes this argument is <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/projects.iq.harvard.edu\/covid-cpi\" class=\"icon none\">Alberto Cavallo, a Harvard Business School professor<\/a>, who a year ago calculated that true inflation was running 0.6 percentage point higher than reported. This year, however, the difference is running the other way: Over the most recent trailing 12-month period, his Covid-CPI has run 0.6 of a percentage point <em>lower<\/em> than the CPI.<\/p>\n<p>While I will leave to others the debate about the plusses and minuses of each of these, and other, definitions, I do want to put them in context. The average monthly Social Security benefit currently is $1,543, so even a full percentage point difference in COLA translates to just $15.43. And most of the differences between the various definitions are less than a full percentage point. A tenth of a percentage point translates to $1.54 more or less per month.<\/p>\n<p>This may not be big enough to worry about, given that there are many other retirement financing issues that make a much bigger difference.<\/p>\n<p><strong>When will Social Security run out of money?<\/strong><\/p>\n<p>One such bigger issue that\u2019s in the news this week is the<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.ssa.gov\/oact\/TR\/2021\/index.html\" class=\"icon none\"> latest report from the chief actuary of the Social Security Administration<\/a> on the solvency of the Social Security trust funds. As has been widely reported, this latest report estimates that the two main trust funds (Old-Age and Survivors Insurance\u2014OASI\u2014and Disability Insurance\u2014DI) will together be unable to pay out 100% of benefits starting in 2034\u2014a year earlier than projected a year ago.<\/p>\n<p>You may wonder how to square that finding with my analysis, just one week ago, that reported good news on the Social Security financing front. There are two reasons:<\/p>\n<p>\u2022 It\u2019s not entirely correct to say that the chief actuary is reporting that the Social Security trust funds will run out of money earlier than previously thought. In updates both last summer and last fall, the chief actuary had already indicated that the combined OASI and DI trust funds would be depleted by 2034. His new report this week merely reaffirms that estimate. And that\u2019s good news because it means, after nearly a year of additional analysis, some of the more nightmarish scenarios about Social Security financing haven\u2019t come to pass.<br \/>\u2022 I based my \u201cgood news\u201d assessment on a report from actuaries from the Congressional Budget Office, who calculated that the OAS trust fund would run out of money in 2032\u2014instead of 2031 as previously thought. In his latest report, the Chief Actuary is estimating that this trust fund in particular will not be depleted until 2033, which is a year later than the CBO is estimating. That also is good news.<\/p>\n<p><em>Mark Hulbert is a regular contributor to MarketWatch. His <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/hulbertratings.com\/\" class=\"icon none\">Hulbert Ratings<\/a> tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com<\/em>.<\/p>\n<\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>    <span>By<\/span><\/p>\n<div class=\"author mobile-scrim hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Mark Hulbert\",\"subhead\":\"The Wall Street Journal\",\"list\":[{\"type\":\"link\",\"icon\":\"bio\",\"url\":\"https:\/\/www.marketwatch.com\/topics\/journalists\/mark-hulbert\",\"text\":\"Biography\"},{\"type\":\"link\",\"icon\":\"twitter\",\"url\":\"https:\/\/twitter.com\/MktwHulbert\",\"text\":\"@MktwHulbert\"},{\"type\":\"link\",\"icon\":\"email\",\"url\":\"http:\/\/www.marketwatch.com\/news\/mailto:contributors@marketwatch.com\",\"text\":\"contributors@marketwatch.com\"}]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\" aria-label=\"links to  author page\"><span class=\"ez-toc-section\" id=\"Mark_Hulbert\"><\/span>Mark Hulbert<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more News articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B20C05575-04D4-B545-760F-EADAACFDC941%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;#Retirement Weekly: The Social Security COLA and \u2018inflation illusion\u2019&#8221; Next year\u2019s Social Security benefits are likely to go up by more than any other year since 1982 Monthly Social Security benefit checks will likely increase next year by the most they have in 40 years. Many retirees are welcoming this news, as they have been&#8230;<\/p>\n","protected":false},"author":1,"featured_media":335382,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-335381","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/335381","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=335381"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/335381\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/335382"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=335381"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=335381"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=335381"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}