Several retiree advocacies arecritical of the use of the CPI-W to assess COLA adjustments,arguing that the index does not accurately reflect seniors' cost ofliving, which is overweighed by medical costs. (Photo:Shutterstock)

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Social Security's more than 67 million beneficiaries will see a2.8 percent increase in monthly checks beginning in January of2019.

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The cost of living adjustment was announced after the Bureau ofLabor Statistics released inflation data for September, which wasconsiderably lower than previous projections.

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Here's how the COLA breaks down into dollars:

  • Retirees receiving maximum benefits: The COLAwill amount to a $73 monthly increase in checks for those receivingthe maximum Social Security benefit, which will be $2,861 a monthin 2019.
  •  Average for all retirees: It willmean a $39 a month increase in the average benefit for allretirees, which will be $1,461 in 2019.
  • Retired couples: The average combined benefitfor retired couples will increase $67 a month, to $2,448.
  • Retired widows, widowers: The average benefitfor retired widows and widowers will increase to $1,386.
  • Disabled workers: The average monthly benefitfor disabled workers with a spouse and at least one child willincrease to $2,130.

How the Social Security COLA is calculated

The COLA is based on changes in the year-over-year inflationrate for the third quarter, which comprises July, August andSeptember.

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July and August saw inflation rates of 3.2 percent and 2.9percent, respectively. Those more robust numbers encouraged earlyprojections that the COLA bump would eclipse 3 percent or more.

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But inflation in September was slack. The Consumer Price Indexfor Urban Wage Earners and Clerical Workers, or CPI-W, which theSocial Security Administration uses to calculate COLAs, posted a2.3 percent increase over last September's number, and a mere 0.1percent increase for the month.

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Economists had been projecting a monthly increase of twice that,at 0.2 percent. The four prior months saw a 0.2 percentincrease.

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The CPI-W is a subset index of the overall CPI, which tracksprices on food, clothing, housing, fuel, transportation, medicalservices, and other expenditures.

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Households considered in the CPI-W must meet tworequirements:

  1. More than half of a household's income must come from clericalor wage-related jobs.
  2. At least one member of the household has to have been employedfor at least 37 weeks for the year.

The CPI-W represents 29 percent of the total U.S.population.

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Increases in the housing index accounted for half of September'sinflation increase, according to analysis from the Bureau of LaborStatistics. The energy index declined, and the food index remainedunchanged.

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The overall medical index also rose.

Critics fault the use of the CPI-W

Several retiree advocacies are critical of the use of the CPI-Wto assess COLA adjustments, arguing that the index does notaccurately reflect seniors' cost of living, which is overweighed bymedical costs.

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The cost of prescription and non-prescription medicine droppedin September. Physician and dental services increased at a fasterrate than overall inflation. Overall hospital services dropped, butthe cost of in-patient stays increased.

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Health insurance costs increased by 1.2 percent in September, anotably brisk rate of inflation.

Actual cost of living increase versus Social Security COLA

About 47.6 million retirees receive Social Security benefits.This year's COLA increase is the largest since 2012, when it was3.6 percent.

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In previous years, the COLAs were largely negated by increasesin Medicare Part B premiums, which are deducted from SocialSecurity checks. Medicare premium adjustments will be announcedlater this fall.

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Premiums in Medicare Advantage plans, which are offered throughprivate insurance companies, will drop next year, according to datareleased by the Center for Medicare and Medicaid Services lastmonth. Average monthly premiums are projected to be $28 in 2019, a6 percent decrease from this year.

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Social Security's COLA increases over the past 18 years haveamounted to a 46 percent increase in payments to retirees.

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But research from the Senior Citizens League released earlierthis year shows seniors' actual cost of living has increased attwice the rate of COLA increases.

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The average monthly Medicare Part B premium was $45.50 in 2000.It was $134 in 2018, accounting for a 195 percent increase,according the Senior Citizens League's research.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.