COLA Watch: May 2012

When we first talked about the Social Security COLA in February, the basis of the COLA, the CPI-W, had not risen considerably since the third quarter of 2011. To recap, the 2012 COLA, if there is one, will be equal to the percentage increase of the third quarter average in 2012 over that in 2011 (the third quarter 2011 average CPI-W was 223.23). Through April, the CPI-W has experienced five straight increases, dating back to December of 2011.

If the third quarter average in 2012 ends up equal to the current value, 227.01, a COLA of 1.7% would take effect in December 2012. Alternatively, if the CPI-W continues to increase at the trajectory of the past 5 months, a COLA of 3.9% would take effect in December 2012 (recall that the December 2011 COLA was 3.6%).

A COLA of 3.9% would lead to a $39 per month increase in benefits for someone currently receiving $1000 per month. However, any increase in Social Security may be partially offset by potential increases in Medicare premiums. Of course, no COLA is possible too, if the third quarter average CPI-W is less than or equal to that from 2011. But, no matter how much the CPI-W were to drop, a negative COLA is not possible under current law.

We can’t know for sure how the CPI-W will change as we get closer to the third quarter of 2012. However, we’ll keep you updated on this blog as the numbers come out.



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