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3 events that can push Social Security's COLA higher




We are getting closer and closer to the most important date on most pensioners' calendars: October 10th.

<p class = "canvas atomic canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "On this date, the Bureau of Labor Statistics (BLS) release inflation data from the month of September, providing the last puzzle needed for social security Administration (SSA) to calculate the program's cost of living adjustment (COLA) for 2020. Or, to put things in English … Social Security recipients will know how much of a "raise" they will receive next year. "Data-reactid =" 12 "> At this date, the Bureau of Labor Statistics (BLS) will release inflation data from the month of September, and provides the latest puzzle needed by the Social Security Administration (SSA) to calculate the program's Cost Lifestyle Adjustment (COLA) for 2020. Or, to put things in English … Social Security recipients want to know how much of a "raise" they will get next year.

Two social security cards lying on top of a lovely pile of cash.

Image Source: Getty Images.

However, understand that Social Security's COLA is not a true increase. It was never designed to help the elderly, disabled and other recipients "get ahead." Rather, COLA is tasked with helping program recipients keep up with the inflation they are facing. This inflation has been measured by the Consumer Price Index for Urban Employees and Salaried Employees (CPI-W) since 1975.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm "type =" text "content =" What is particularly interesting about CPI-W in relation to Social Security's COLA is that SSA does not participate in CPI-W readings over an entire year. Instead, only readings from the third quarter (July to September) are important, with the average CPI-W reading from the current year compared to the average CPI-W reading from the previous year, the average reading increases year over year in the third quarter, when the recipients receive a "raise" corresponding to a percentage increase (rounded to the nearest 0.1%). Meanwhile, if the average reading decreases, which signals deflation, the benefits remain static from one year to the next. "data-reactid =" 35 "> What is particularly interesting about CPI-W in relation to Social Securit ys COLA, is that SSA does not attend CPI-W readings over a full year period. Instead, only readings from the third quarter (July to September) matter, while average CPI-W reading from the current year is compared to average CPI-W reading from the previous year. If the average reading increases year by year in the third quarter, the recipients receive a "raise" corresponding to a percentage increase (rounded to the nearest 0.1%). Meanwhile, if the average reading declines, which signals deflation, the benefits remain static from one year to the next.

<p class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Based on the original data from July BLS inflation report, social recipients appear to be on track for 1.6% to 1.7% COLA . But, again, this tells only part of the story, with data from August and September still needed for to complete the puzzle. "data-reactid =" 36 "> Based on the original data from the July BLS inflation report, social security recipients appear to be on track for a 1.6% to 1.7% COLA. But again, this only tells parts of the story, with data from August and September that were still needed to complete the puzzle.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – -sm Mt (0.8em) – sm" type = "text" content = " Social Securitys 2020 COLA may be higher than expected "data-reactid =" 37 "> Social Securitys 2020 COLA May be higher than expected

What is possible is that external factors can boost COLA that recipients receive next year. If you are currently receiving a monthly scholarship from the nation's most successful social program, here are three events that could push Social Security's COLA higher by 2020.

A satellite image showing a Florida hurricane.

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<h2 class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " 1. Hurricanes "data-reactid =" 60 "> 1. Hurricanes

<p class =" canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type = "text" content = "One thing you may have noticed about the three months chosen for the COLA calculation is that they are smug-dab in the middle of the hurricane season . Hurricanes in themselves are terrible storms that we prefer to stay out on open water and do not affect anyone, but the fact remains that the East Coast and the Gulf of Mexico are sometimes bullies for hurricanes, and when hurricanes hit, it can negatively impact the US energy industry, both onshore and offshore. "data-reactid =" 61 "> One thing you may have noticed during the three months selected for the COLA calculation is that they are haphazard in the middle of the hurricane season. Hurricanes themselves are terrible storms that we prefer to stay out in the open water and not affect anyone. But the fact remains that the eastern seaboard and the Gulf of Mexico are sometimes bull's eye for hurricanes. And when hurricanes hit, it can negatively impact the US energy industry, both onshore and offshore.

<p class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "In July , when Hurricane Barry noted in Louisiana and the Gulf of Mexico, 59% of oil production and 49% of Gulf natural gas production were shut down prior to the storm . When energy infrastructure is disrupted by a hurricane, to raise crude prices, which eventually sends gasoline prices higher. With energy being one of the many components used to calculate CPI-W, hurricanes tend to raise energy inflation, which can wind up increasing CPI-W – and Social Security data COLA. "Data-reactid =" 66 "> In July, when Hurricane Barry invaded Louisiana and the Gulf of Mexico, 59% of oil production and 49% of Gulf natural gas production were shut down before the storm. When energy infrastructure is disturbed by a hurricane, it tends to raise crude prices, which eventually sends gasoline prices higher. Since energy is one of the many components used to calculate CPI-W, hurricanes tend to lift energy inflation, which can wind up increasing CPI-W and Social Security's COLA.

Two fists square off, with one embellished as the American flag and the other as the Chinese flag.

Image Source: Getty Images.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – -sm Mt (0.8em) – sm" type = "text" content = " 2. An escalating trade war with China "data-reactid =" 88 "> 2. An escalating trade war with China

<p class =" canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" A second event that may have a positive effect on Social Security's COLA is the ongoing US-China trade war President Trump believes. the US trade deficit with world number 2 GDP in the world is unsustainable in the long run, while President Xi Jinping of China is reluctant to give up many of China's competitive advantages that make it a popular country to import from. This fate has led to that both sides impose tariffs on selected goods imported from their chief rival. " data-reactid = "89"> Another event that could have a positive effect on Social Security's COLA is the ongoing US-China trade war. President Trump believes that the US trade deficit with country # 2 GDP in the world is unsustainable in the long run, while President Xi Jinping in China is reluctant to give up many of China's competitive advantages that make it a popular country from there to import. This mortality has led both sides to impose tariff rates on selected goods imported from their main rival.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The idea of ​​a tariff is quite simple: It is designed to force consumers to buy domestic goods In other words, Trump imposing a Chinese steel or aluminum tariff is meant to force US companies to buy US steel or aluminum, but it does not work Companies and consumers may choose to continue to buy the same goods, but they will be forced to pay a higher price for these goods as a result of the tariffs, which will lead to inflation that will be recognized in the CPI-W and could lead to a higher COLA by 2020. "data-reactid =" 90 "> The idea of ​​a tariff is quite simple: It is designed to force consumers to buy domestic goods. In other words, Trump imposing a tariff on Chinese steel or aluminum is meant to force US companies to buy US steel or aluminum. But it doesn't always work that way. Businesses and consumers may choose to continue to purchase the same items, but they will be forced to pay a higher price for these items as a result of the tariffs. This higher price leads to inflation that will be recognized in the CPI-W and could lead to a higher COLA in 2020.

Image Source: Getty Images.

<h2 class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " 3. A dovish Fed "data-reactid =" 112 "> 3. A dovish Fed

A third and final event that has the potential to lift Social Security's COLA's Federal Open Market Committee (FOMC) meetings. Compared to hurricanes and the trade war, monetary measures taken by the Federal Reserve often take a while to work into the US economy, so this is more of a long shot than the other two events to have a significant impact on Social Security's 2020 COLA . However, the effect of FOMC actions cannot be zero either.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "You see, at the end of July, it sank Fed rates for the first time in more than 10 years after a move to increase federal fund rates for a three-year period. Lower lending rates have a habit of encouraging businesses and consumers to spend more since the cost of This increase in spending and consumer demand can have a positive impact on economic growth and pricing power for the business, and when companies have more pricing power, it should be reflected in the CPI-W as a higher reading. We have already seen a cut of 25 points, and the September meeting can really encourage businesses and consumers to open their wallets, depending on how skilled FOMC is. "data-reactid =" 114 "> You see, at the end of July, the Fed lowered interest rates for the first time for more than 10 years after a stretch of raising their feeds general fund prices for a period of three years. Lower lending rates have a habit of encouraging businesses and consumers to spend more since the cost of borrowing money drops. This increase in consumption and consumer demand can have a positive impact on economic growth and pricing of the business. And when companies have more price power, it should be reflected in the CPI-W as a higher reading. We've already seen a 25-point cut, and the September meeting can really encourage businesses and consumers to open their wallets, depending on how well FOMC comes across.

A visibly distressed mature couple examining the economy.

Image Source: Getty Images.

<h2 class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Not much to cheer on "data-reactid =" 136 "> Not much to cheer on

<p class =" canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" Of course, no matter what COLA passes on to Social Security Beneficiaries next year, there is probably nothing to be pleased about, because CPI-W is not a particularly accurate measure of inflation for g group of people Social Security is designed to protect the elderly: "data-reactid =" 137 "> Of course, no matter what COLA is passed on to beneficiaries next year, there is probably nothing to please above. This is because the CPI-W is not a particularly accurate measure of inflation for the group of people. Social Security is most developed to protect: the elderly.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "As the name of the KPI-W suggests , it is an inflation measure that tracks the habits of urban and clerical workers, workers who traditionally do not receive social security benefits and are of working age, in other words, they spend money very differently than retired workers, which can cause problems. , such as shelter and medical treatment, tend to be underweight in the CPI-W, while less important expenditures, such as clothing and education, carry more weight, resulting in an almost sustained decline in purchasing power for the elderly since the turn of the century . " data-reactid = "138"> As the name of the CPI-W suggests, it is an inflation measure that tracks the habits of urban and clerical workers. These are workers who do not traditionally receive social security benefits and are of working age. In other words, they spend their money very differently from retired workers, which can cause problems. Important costs for the elderly, such as shelter and medical treatment, tend to be underweighted in the CPI-W, while less important expenses, such as clothing and education, have greater weight. The result has been an almost sustained decline in purchasing power for the elderly since the turn of the century.

Whatever 2020 COLA has in store for retired workers, there will not be anywhere near enough to close the gap in purchasing power that has been building up over the last two decades. At this point, retired workers must hope that COLA in 2020 will simply follow the inflation they have coped with over the past year.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More From The Motley Fool "data-reactid =" 140 "> More from The Motley Fool

<p class =" canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" The Motley Fool has a disclosure policy . "data-reactid =" 148 "> Motley Fool has a disclosure policy.

<p class = "canvas-atom canvas text Mb (1.0 em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This article was originally published on Fool.com "data-reactid =" 149 "> This article was originally published on Fool.com



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