Tens of millions of Americans are about to retire in what will probably be the biggest increase of their lives.
Controversy abounds about this move, known as COLA, for its abbreviation in English (which refers to cost of living adjustment, or adjustment to cost of living). Some say that the data the government uses to decide what it actually spends or does not reflect the impact of inflation on their lives. Furthermore, growth covers the whole world, regardless of where people live or what resources are available to them.
Look at the situation:
Why so much competition?
Because the announcement will determine what the more than 65 million people seeking state retirement will receive. Some estimates speak of an increase of around 9%.
Will this be the biggest increase in history?
No, but it is the biggest in 40 years. In 1981 it was 11.2%.
When will the increase happen?
In January. And they will be permanent. there is no turning back. Next year’s growth will be based on these new figures. Last year’s growth of 5.9% was also the biggest in four decades.
What is the average growth?
Since 2000, it has been 2.3%, as inflation has been incredibly low for several business cycles. In fact, after the 2008 financial crisis, there was no growth in the three years as inflation was minimal.
How is growth determined?
Based on the CPI-W, an index that reflects changes in the prices of a basic basket of products and services purchased by active workers, not retired. However, this index is not the most followed by connoisseurs. The most followed CPI-U is the Consumer Index – Urban Consumers, which covers all urban consumers. It covers 93% of the population, while the CPI-W covers 29%.
For years many experts have been saying that Social Security should adjust its spending based on measures for the elderly, not the general population.
Another experimental index, the CPI-E, is thought to better reflect the spending of people age 62 and older. Historically, it has been found that older people experience higher rates of inflation than the CPI-U and CPI-W. However, recently the CPI-E detected slightly lower inflation than the CPI-W and CPI-U.
Why are other indices not used?
The CPI-E takes fewer people into account and the government fears it is not very accurate. In addition, if he uses a higher inflation-detection index, he would have to increase annual wage increases and the Social Security reserve, which, at the current rate, would last a little more than a decade, rapidly depleting. If measures are not taken, there will be funds to cover 80% of the amount belonging to a retiree by 2035.
What if there is a recession?
The risk of recession increases with each passing day, but many economists predict that inflation will decline as the effects of rising interest rates are felt and supply chains improve.
For example, Deutsche Bank estimates that inflation, which fell from 8.2% in August to 7.2%, will continue to decline in the last three months of the year and to 3.9% in the second quarter of 2023.
This is important for retirees as it would mean that the growth they would get from January would be higher than the inflation at that time. This will help make up for the loss in 2022, in which the increase in January did not match the inflation this year.