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Predicted 2024 COLA Increase May Do Little to Offset Retirees’ Budget Woes

Cost of Living Adjustment (COLA) is an adjustment made to various financial benefits, such as retirement pensions, Social Security payments, and government employee salaries, to account for changes in the cost of living. It is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 

In 2023, cost-of-living adjustments (COLA) for retirement programs received the highest increases in more than 40 years. Social Security and the Civil Service Retirement System (CSRS) received 8.7% while the Federal Employees Retirement System (FERS) received 7.7%.

Based on recently released consumer price data, the 2024 COLA is estimated to be approximately 3.2% (for SSA and CSRS), according to The Senior Citizens League (TSCL).  That would equal a 2.2% increase for FERS retirees because of how the FERS COLA is calculated. The COLA has averaged 2.6% over the last 20 years. So, a 3.2% increase is lower than the last two years but higher than average. 

While inflation is lower than a year ago, many older Americans are still feeling that increases in basic living expenses like housing, electricity, gas and medical expenses are proving to be a challenge, especially when they rely mostly -- if not completely -- on fixed incomes. 

Increase in Housing Costs

The significant increase in national average rent, from $1,584 pre-pandemic to $2,052 in August of this year, as reported by Rent.com, reflects the complex dynamics impacting the rental market. Average home prices in the United States have gone up tremendously. The median home sales price is $416,100 as of the second quarter of 2023. That's a 26% increase from 2020, when the median was $329,000 according to www.fool.com. The COVID-19 pandemic has ushered in a period of heightened demand for housing, driven by various factors such as changing work arrangements, migration patterns, and historically low interest rates, which have spurred both homebuying and rental demand. To make things even worse, mortgage rates have gone up to 7.45% for a 30-year fixed mortgage rate as of 9.28.23 according to Nerdwallet. That is approximately double where it was at pre-covid which Time.com reports was at 3.72%. 

Increase in Gas Prices

US gas prices per gallon have wavered between a national average of $1.84 and $4.99 since 2018. Americans saw the lowest annual average in 2020 when the average cost for a gallon of gas was $2.19. Fast-forward three years and gas is running an average of $3.59 so far in 2023. (Shell, US)

Electricity Price Increases

According to the U.S. Bureau of Labor Statistics, prices for electricity are 24.42% higher in 2023 than in 2020. Economists say consumers should expect their electric bills to continue rising at a fast pace as liquified natural gas, a key fuel for generating electricity, remains in short supply in the U.S. and companies' operating costs rise. Average U.S. electricity prices could rise at a 10% clip again this year and possibly next, predicts Mark Wolfe, director of the National Energy Assistance Directors Association, even though economists have forecast overall inflation to ease to between 3% and 4% by year-end.

As you can see, inflation can be a major player in your retirement. It is so important to have enough investments that are properly diversified and managed to be able to offset times like this where the COLA does not keep up with the actual cost of living. At FEBA, we specialize in assisting Federal Employees to properly plan for, execute, and live in retirement. We know your government benefits inside and out. While you have an incredible retirement benefits package, it’s not perfect. We know the strengths as well as the weaknesses of the 6 federal retirement benefits. We can help you understand what those mean to you and your situation and we can help you maximize your retirement. Contact us today for a free consultation.  

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