Government to release cost-of-living adjustment Tuesday

UPDATE: The numbers have been released. See our story here. 

Federal retirees will find out Tuesday the amount of next year’s Social Security cost-of-living adjustment.

The Bureau of Labor Statistics will release September’s inflation numbers Oct. 16, the final data point needed to calculate the 2013 COLA. The increase is likely to be in the neighborhood of 1.4 percent, which is much smaller than this year’s 3.6 percent bump.

The government publishes the annual cost-of-living adjustments typically in late October, based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. The 3.6 percent boost in 2012 was the first COLA increase since 2008.

The CPI-W rose 1.7 percent between August 2011 and August 2012, largely due to an increase in gasoline prices. The average of the July, August and September numbers along with the average figure from the third quarter of 2011 will be used to calculate the 2013 COLA, which is estimated to be about 1.38 percent. In May, the Congressional Budget Office predicted a COLA boost of 1.3 percent in 2013.

If, for the sake of argument, the 2013 COLA turns out to be 1.4 percent, then that means federal retirees -- whether they are covered by the Civil Service Retirement System or the Federal Employees Retirement System -- will receive the full 1.4 percent. According to the formula, if the full COLA increase is 3 percent or higher, as it was for 2012, then FERS retirees receive 1 percent less than the full increase. So FERS retirees received a 2.6 percent boost for 2012. If the COLA falls between 2 percent and 3 percent, then FERS retirees would receive 2 percent. If the increase is less than 2 percent, as it likely will be in 2013, FERS retirees receive the same as CSRS retirees.

This year's increase takes effect on Dec. 1 and will be reflected in retirees’ first annuity payments in January 2013. The salaries of federal employees are not affected by the COLA announcement.

The COLA amount that recipients actually end up with is affected by Medicare Part B premiums, since those premiums are deducted from Social Security payments. The government will announce the 2013 premiums, expected to increase between 5 percent and 10 percent over 2012 rates, later this fall. That means recipients likely will see less than the 1.4 percent expected increase.

(Image via Stephen Finn/Shutterstock.com)