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How is the cost of living allowance increase calculated?

The Social Security Administration announced a small increase in the cost of living allowance (COLA) for 2017. The 0.3 percent rate increase will give each of America's 60 million social security recipients four to six dollars more per month next year.

Minimal increases in the COLA are often met with concern because an increase in COLA also means an increase in Medicare Part B medical insurance premiums, the cost of which many beneficiaries rely on their social security checks to pay. People are often left wondering just exactly how the cost of living allowances are calculated by the Social Security Administration.

Complex benefits mean complex math

According to the administration, the formula for calculating COLA is defined in the Social Security Act signed by President Franklin D. Roosevelt in 1935. Since then, Social Security has grown to benefit one in five Americans today. Its broad reach to a diverse population makes for a complex formula when calculating benefits.

The COLA is based on increases to the CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers. This index measures the price levels of consumer goods and services and is calculated by the Bureau of Labor Statistics, an agency within the Department of Labor.

COLA increase means higher insurance premiums but lower inflation

In simpler terms, a COLA increase should match inflation. The higher price tags you see while shopping for common household goods and services should be reflected in the COLA increase. A small increase in Social Security's COLA is sometimes bad news for beneficiaries due to increases in insurance premiums. However, this can be good news for American consumers as a whole because it means inflation is generally under control.

Consumers in 2016 paid just $0.82 more for total household goods and services on a quarterly basis compared to 2014.

How to get help with rising costs

One in five beneficiaries receives payments as a result of disability including military veterans. An attorney can help you cope with the rising costs of living by pursuing a claim. This process can also include appealing a denial of claims or seeing if you qualify for more benefits due to a change in the law.

The restrictions on Social Security benefits are confusing, but you can properly navigate the system with the right legal help.

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Alan E. DeWoskin, P.C.
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