Why COLAs Matter

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In our most recent issue of LAGERS’ Retiree Newsletter, we announced that this year’s Cost of Living Adjustment, for most retirees, would be around 0.1%. I always enjoy hearing the questions and comments in response to our newsletters, and this issue, I received one response back that I thought was particularly interesting. The single line of the email read:

“Why even bother with such a little increase.”

It’s a perfectly valid question; and there’s no real way to sugar coat it, 0.1% isn’t much. But that doesn’t mean that this year’s increase is any less important than last year’s. I often hear retirees refer to their COLA’s as ‘my LAGERS’ raise,’ and while the annual adjustments, when granted, do mean your LAGERS benefit is going to increase year over year, the point is not to just put more money in our retiree’s pockets. The point is to ensure that over a lifetime, our retirees maintain the same purchasing power with their benefit that they had when they retired.

We give an example at our pre-retirement seminars of a lady who retired from LAGERS in 1993 with an annual benefit of $1,200 a month, or $14,400 each year. Over a twenty year period, she continued to receive her cost of living adjustments. Some years, the adjustment was higher than others and one year there was no adjustment given at all because of deflation. While one percent here, half a percent there may not feel like it’s even worth bothering with, remember that your cost of living adjustments compound over a lifetime and can make a big difference in your standard of living in the long run. Fast forward to 2013, and the retiree from our example is now receiving 163.7% of her original benefit. That’s $1,964 a month, or $23,572 each year! And no, it doesn’t mean that she can drive a nicer car or live in a fancier house. What this example tells us is that things cost a lot more today than they did 20 years ago. For example, a dozen eggs in 1993, on average cost around $.87; today, you’d be lucky to find eggs at double that price.

Another one of the most popular questions regarding COLAs from pre-retirees is ‘what is the average adjustment per year?’ Again, this question is kind of missing the point when it comes to the adjustment, because even though, on average, our retirees have received approximately 2% each year over the past decade, that doesn’t mean that is what the adjustment will be going forward. The point that our members and retirees should instead be focusing on is, “do LAGERS retirees have as must purchasing power with their benefits as they did five, ten, fifteen, twenty years ago?” The answer is yes! All of LAGERS retirees and beneficiaries have 100% of their original purchasing power with their benefit as of October 1, 2015.

Inflation risk is something that all retirees have to manage. Fortunately, with your LAGERS benefit, it’s one less thing you have to worry about. No matter how big or small your COLA increase is from year to year, remember that it is serving an extremely valuable purpose: to protect your benefit over your lifetime from losing purchasing power. This means that LAGERS retirees can continue to enjoy their same standard of living well into a twenty or thirty year retirement, and that’s a pretty awesome benefit!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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2 thoughts on “Why COLAs Matter

  1. Glen Taylor says:

    I don’t know where you shop or live but the raise I got just covers my internet raise in cost. That means according to your statement nothing else I purchase the rest of the 12 month period will have risen in cost. I would like to live your Oz. if I lived there all the different insurance I pay for will stay the same. They are up. Electricity will not go up or my phone. Food will be the same. All the co-pay’s for doctors and prescriptions will revert back. I would say as a rough guess the rise in nessesities rose 6 to 10 last year if not more. So much for keeping are buying power the same. Every year our col goes up. It just seems that under Obama the pencils have changed and you just follow them. If I get the time I will print off the differences in some of the items above so you can see real numbers of how the COL has really risen. You need to get your head out of OZ and live with the real world. You also need to know we know this is not to make us richer but it would be nice to keep us in the ballpark instead of 10 blocks from the stadium.

    • Jeff Kempker says:

      We understand that the adjustment this year was extremely small, but it does accurately reflect the Consumer Price Index as calcated by the US Bureau of Labor Statistics. MO law tells us that is the number to use, whether large or small, to a max of 4%.

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