NEW YORK (HPD) — Tens of millions of American retirees are about to receive what will likely be the biggest raise of their lifetimes.
On Thursday the government will announce how much the pension will increase after making the annual adjustment for inflation. It will undoubtedly be the largest increase in four decades.
Controversies abound about this step, known as COLA, for its acronym in English (which alludes to Cost of Living Adjustment, or adjustment to the cost of living). Some say the data the government uses to decide raises doesn’t reflect what seniors actually spend or the impact of inflation on their lives. Furthermore, the increase encompasses the entire world, regardless of where people live or what resources are available to them.
Look at the state of affairs:
WHY SO MUCH A COMBAT?
Because the announcement will determine what the more than 65 million people who receive state retirement will receive. Some estimates speak of an increase of around 9%.
WILL IT BE THE LARGEST INCREASE IN HISTORY?
No, but the biggest in 40 years. In 1981 it was 11.2%.
WHEN WILL THE INCREASES TAKE PLACE?
in January. And they will be permanent. There is no turning back. Next year’s increases will be based on these new figures. Last year’s increase of 5.9% had also been the largest in four decades.
WHAT IS THE AVERAGE INCREASE?
Since 2000, it has been 2.3%, as inflation has remained incredibly low for several business cycles. In fact, after the financial crisis of 2008, in three years there were no increases because inflation was minimal.
HOW IS THE INCREMENT FIXED?
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 retirees. That index, however, is not the most followed by connoisseurs. The most followed is the CPI-U, 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 make its adjustments based on spending measures of the elderly, not the general population.
Another experimental index, the CPI-E, is supposed to better reflect the spending of people 62 and older. Historically, it reveals that older people experience higher rates of inflation than the CPI-U and CPI-W. Although recently the CPI-E detected a slightly lower inflation than the CPI-W and the CPI-U.
WHY ARE OTHER INDICES NOT USED?
The CPI-E takes into account fewer people and the government fears that it is not very accurate. Apart from that, if he used an index that detects higher inflation, he would have to increase the annual increments and the Social Security reserve, which, at the current rate, will last little more than a decade, would run out faster. If measures are not taken, as of 2035 there would be funds to cover 80% of the amount that corresponds to a retiree.
WHAT HHPDPENS IF THERE IS A RECESSION?
The danger of a recession increases with each passing day, but many economists forecast that inflation will decline as the impact of rising interest rates begins to be felt and supply chains improve.
The Deutsche Bank, for example, estimates that inflation, which fell from 8.2% to 7.2% in August, will continue to decline in the last three months of the year and that in the second quarter of 2023 it will be 3.9% .
This is key for retirees because it would imply that the increase they will begin to receive from January will be higher than the inflation at that time. This would help compensate for the losses suffered in 2022, in which the increase in January did not keep up with the inflation that occurred this year.