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Subject:  Guessing Sept’s CPI-W Date:  10/4/2012  3:21 PM
Author:  trader2012 Number:  34447 of 35835

Roughly speaking, SSI COLAs are based on the change in value between the average of the CPI-W numbers for Q3 of the present year compared with that of the prior year. As you can see below, SSI recipients can be projected to see a 1.38% increase in their benefits come January 2013 if September’s, yet-to-be-reported number declines from that of August to nothing lower than the average of the already reported numbers for July and August.

Jul Aug Sep Average COLA
2011 222.686 223.326 223.688 223.233
2012 225.568 227.056 226.312 226.312 1.38%

OTOH, if Sept’s number comes in the same as August’s, then COLA bumps to 1.49%.
 
Jul Aug Sep Average COLA
2011 222.686 223.326 223.688 223.233
2012 225.568 227.056 227.056 226.56 1.49%

But my guess if that an even bigger increase will occur.

There are at least two ways to estimate the CPI-W for Sept. One is to impose a linear regression on a relatively recent potion of the series, such as from Jan 2010 forward, and then extend the trend-line by one month. The other is an averaging technique: compare past August values to past September values over many years and then guess that same, seasonal rate of change will carry forward. A linear regression done in Excel suggests a value for Sept in the neighborhood of 228.350, bumping the COLA to 1.68%.

Jul Aug Sep Average COLA
2011 222.686 223.326 223.688 223.233
2012 225.568 227.056 228.350 226.991 1.68%

The seasonal method offers a slightly lower CPI-W number, something in the neighborhood of 228.023, bumping the COLA to just 1.63%.

Jul Aug Sep Average COLA
2011 222.686 223.326 223.688 223.233
2012 225.568 227.056 228.023 226.882 1.63%

But unless the BLS fudges the numbers downward farther than they have already been doing for the past 20 years, it looks as if SSI recipients will be getting a small increase in their checks next year. (The full data set is below.)

Yeah, today was just one of them days in the bond-market when I "just couldn't get no traction". Nothing looked worth buying, nor even investigating. So I backed up one level and did some financial planning, namely, "With cash being so hard to put to work, did I really need to put it to work?" According to my custom-built, "Retirement Incomes & Expenses" spreadsheet, a male has only a one in four chance of living to age 89. But the combo of my pension and SSI benefits covers my projected expenses until then (assuming an average, 5% inflation-rate and an average 2% SSI COLA increase). So why did I need an income-stream from investments except as backup? And if that were the case, could I cease buying today and just let everything unwind as my bond holdings came due, with never the need to do any re-investing of the cash received from either coupons or maturities? Part of answering that required me to dig into how Social Security COLAs are calculated.

Definitely, it's gotten to be time to do some Fall fishing and stop worrying about this stuff. Que sera, sera.

Charlie
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Year Jan Feb Mar Apr May Jun Jul Aug Sep Diff Oct Nov Dec
1974 46.9 47.5 48.0 48.3 48.8 49.3 49.7 50.3 50.9 1.2% 51.4 51.8 52.2
1975 52.4 52.8 53.0 53.2 53.5 53.9 54.5 54.7 54.9 0.4% 55.3 55.6 55.8
1976 56.0 56.1 56.2 56.5 56.8 57.1 57.4 57.7 57.9 0.3% 58.2 58.3 58.5
1977 58.9 59.5 59.8 60.3 60.6 61.0 61.3 61.5 61.8 0.5% 61.9 62.2 62.5
1978 62.8 63.2 63.7 64.3 64.9 65.6 66.0 66.4 66.8