Tuesday, July 22, 2014

First Look at 2015 Cost-Of-Living Adjustments and Maximum Contribution Base

by Bill McBride on 7/22/2014 05:09:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.0 percent over the last 12 months to an index level of 234.702 (1982-84=100). For the month, the index rose 0.2 percent prior to seasonal adjustment.
CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

Since the highest Q3 average was last year (Q3 2013), at 230.327, we only have to compare to last year. 

CPI-W and COLA Adjustment Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 2.0% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will be higher than the previous two years, and will probably be a little over 2% this year.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2013 yet, but wages probably increased again in 2013. If wages increased the same as last year, then the contribution base next year will be increased to around $120,500 from the current $117,000.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).