The Stanly News and Press (Albemarle, NC)

Opinion & Letters to the Editor

February 25, 2013

What’s the best ‘COLA’?

Monday, February 25, 2013 — A COLA war is going on. It hit the headlines a couple of months ago, has now subsided but is threatening to come back. It’s a war that not only can affect those who enjoy liquid refreshments but potentially everyone.

So is this a war between the big-name soda manufacturers? Actually, it’s not. I’m not talking about the best-tasting or most thirst-quenching carbonated beverage. Instead, I’m referring to the best “cost-of-living adjuster.”

Now, before you tune out, let me remind you, this version of the COLA war has the potential to affect everyone. This is because the front where the war will be waged is Social Security, and 90 percent of us are in the Social Security system. So using a popular current phrase, virtually all of us have some skin in this fight.

But just what is this COLA war? It’s a discussion (war is really too harsh a term) about the best index to use to adjust future Social Security payments received by retirees.

When Social Security was introduced in the 1930s, payments to retirees were not periodically changed to keep up with the cost of living. This didn’t begin until the 1970s, when price inflation started to be a big problem. Now, each year retirees receiving Social Security receive an increase in the amount they receive based on how some broad increase in average prices has changed.

This annual adjustment in Social Security payments is a big help to retirees. Even though the annual change can be small, over time it can accumulate to an impressive gain. For example, if a 3 percent increase is received each year for 10 years, then after a decade, the Social Security recipient’s checks will be more than one-third (with compounding) higher.

However, the big question is, What method should be used to make the annual adjustments to Social Security payments? Currently, the government uses its main inflation gauge — the Consumer Price Index, or CPI — to make these adjustments.

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