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crs1  
#1 Posted : Tuesday, December 18, 2012 11:30:58 PM(UTC)
crs1

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I worked in excess of 3 decades under CSRS with the rule being my retirement COLA would be based on CPI-W enabling that annuity to keep pace with inflation. Now, a few months after having retired, it appears likely the rules will be changed to base COLAs on the Chained CPI which will lose to inflation. Between my own CSRS annuity and my wife's much smaller SS benefit, it appears our entire non-investment related income will be degraded over time. Well, that's just great. I am owed a benefit which I paid for via 7% of my salary for over 30 years, and now, if this initiative passes, the government will not live up to it's end of the bargain.

The impact is significant. A CSRS retiree will lose 9.2% of annual inflation adjusted retirement income (as determined by CPI-W) from that annuity after a period of 30 years:

http://www.federalnewsradio.com/722/3162805/Fed-groups-pounce-on-Obamas-COLA-proposal

Depending on the ammount of your initial CSRS annuity and your spouse's SS, the loss of dollars over that time period can easily approach 6 figures:

http://www.federalnewsradio.com/20/3162469/Compromise-hits-highestlowest-incomes

I see little discussion by the "talking heads" about the impact on this group of people. You might want to assess this impact on your own scenario. I, for one, don't appreciate this potential rule change, a mere 4 months after I made my retirement decision which was more or less forced upon me by prior BRAC action.

crs1

JimEli  
#2 Posted : Wednesday, December 19, 2012 12:12:08 AM(UTC)
JimEli

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crs1 wrote:

...
I am owed a benefit which I paid for via 7% of my salary for over 30 years, and now, if this initiative passes, the government will not live up to it's end of the bargain.
...


Well, it appears the politicians spent the 7% they deposited with the treasury along with your 7% contribution. And then they promise us more and greater benefits, then they borrow and spent a lot more.

Yet we idiots vote them back in.

postalvet  
#3 Posted : Wednesday, December 19, 2012 12:19:56 AM(UTC)
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everyone needs to write to their representative and voice their concern. my message has already been sent.
Retired postal worker of 38 years who is willing to help even though some do not want to hear the truth.
1zingo  
#4 Posted : Wednesday, December 19, 2012 12:53:48 AM(UTC)
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crs1: You and I are in pretty much the same boat. The second linked article you posted contains a statement by a Mr. Sparks claiming that the difference between the CPI-W formula and a chained CPI is .003%. I'll have to take his word for that. Mr. Sparks then calculates that, over 20 years, the implementation of a chained COLA would cost a hypothetical retiree with a $50k annuity almost $40k. I assume that has something to do with the compounding effect of the deceptively small difference between the aforementioned two colas. However, I haven't been able to successfully duplicate that calculation. So, I'd be grateful if someone could post a formula for calculating the compounding effect that a .003 difference in colas would have on a CSRS annuity over time.
Skippy134  
#5 Posted : Wednesday, December 19, 2012 1:13:11 AM(UTC)
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I come up with a difference of about $4300 over 20 years assuming 2% versus 1.7%.

Keep in mind FERS already has a chained COLA.
JimEli  
#6 Posted : Wednesday, December 19, 2012 1:33:07 AM(UTC)
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1zingo wrote:

...
However, I haven't been able to successfully duplicate that calculation. So, I'd be grateful if someone could post a formula for calculating the compounding effect that a .003 difference in colas would have on a CSRS annuity over time.


Sparks compounded .3% (not .003%-- the difference between a 2% vs. 1.7% COLA) over 20 years by comparing the following:

1: $50000 * 1.02 = $51000
2: $51000 * 1.02 = $52020
3: $52020 * 1.02 = $53060 etc…

vs:

1: $50000 * 1.017 = $50850
2: $50850 * 1.017 = $51714
3: $51714 * 1.017 = $52593 etc…

Then added up the difference = $39,888.17
JimEli2012-12-19 09:39:11
Skippy134  
#7 Posted : Wednesday, December 19, 2012 1:35:46 AM(UTC)
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Sparks must be a mathematician.
JimEli  
#8 Posted : Wednesday, December 19, 2012 2:59:22 AM(UTC)
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Skippy134 wrote:
I come up with a difference of about $4300 over 20 years assuming 2% versus 1.7%.

Keep in mind FERS already has a chained COLA.


Your math ignores the year-year accumulated loss, and simply shows the differnece after 20 years ($74297 - $70046 = $4250)

JimEli2012-12-19 11:11:56
crs1  
#9 Posted : Wednesday, December 19, 2012 2:59:57 AM(UTC)
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1zingo wrote:
crs1: You and I are in pretty much the same boat. The second linked article you posted contains a statement by a Mr. Sparks claiming that the difference between the CPI-W formula and a chained CPI is .003%. I'll have to take his word for that. Mr. Sparks then calculates that, over 20 years, the implementation of a chained COLA would cost a hypothetical retiree with a $50k annuity almost $40k. I assume that has something to do with the compounding effect of the deceptively small difference between the aforementioned two colas. However, I haven't been able to successfully duplicate that calculation. So, I'd be grateful if someone could post a formula for calculating the compounding effect that a .003 difference in colas would have on a CSRS annuity over time.


The average difference touted in the literature between the 2 methods is 0.3%. You can set this up on Excel which I just did. I suspect JimEli did the same as we have the same answers.

Mr. Sparks is right for the scenario of an initial $50K annuity comparing COLAs of 1.7% vs. 2.0% over a period of 20 impacted years:

Total dollars lost = $39,888
Annual annuity in yr 20 using 1.7% = $70,047
Annual annuity in yr 20 using 2.0% = $74,297
Annuity difference in yr 20 = $4,250 or 5.7%.

The numbers depend on actual CPIs used in that calculation. For example, assuming a CPI-W of 3.0% vs. a Chained CPI of 2.7%, total dollars lost after year 20 = $45,374 again with an annual annuity reduction of 5.7% in year 20.

Of course the numbers compound worse for a 30 year period, which may be the likely scenario for a CSRS employee. Note someone mentioned above that a FERS retiree already uses a chained COLA. That is not true, their current COLA is also based on CPI-W, albeit a different formula if CPI-W exceeds 2%.crs12012-12-20 17:50:06
Skippy134  
#10 Posted : Wednesday, December 19, 2012 3:12:15 AM(UTC)
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Perhaps I used "chained" in the wrong context for FERS.   If the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar. less than 2%.
crs1  
#11 Posted : Wednesday, December 19, 2012 6:14:26 AM(UTC)
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Skippy134 - That's what I thought you probably meant, but I wanted to clarify so there's no confusion. Both CSRS and FERS are impacted.

For either CSRS or FERS, make no mistake; this is a substantial cut to an already earned and promised benefit for those already retired, a raw deal if it happens.
penelope1440  
#12 Posted : Wednesday, December 19, 2012 10:41:46 AM(UTC)
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I thought I heard that the increase in Medicare Part B premiums is tied to the COLA. If they do approve the chained CPI, would that mean that the increases in Part B premiums would be less?

Thanks for your time.
GoHuskers  
#13 Posted : Wednesday, December 19, 2012 11:07:20 AM(UTC)
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Part B premiums aren't tied to the COLA. Just look at this year - premium going from $99.90 to $104.90, about a 5% increase, where the COLA is only 1.7%.
MMOB  
#14 Posted : Wednesday, December 19, 2012 1:30:28 PM(UTC)
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crs1 wrote:
I see little discussion by the "talking heads" about the impact on this group of people.


Why should there be? This change is being made to keep Social Security solvent. The fact that it is also used to adjust CSRS annuities is just a minor sidenote in the overall discussion.   

I'm going to take an unpopular position on this board and say that I'm fine with the change. As far as I'm concerned, you're all a bunch of whiners who should be happy with any cost-of-living adjustment at all. COLAs are virtually non-existent in private sector pensions. Hell, private sector pensions themselves are almost non-existent.

I'll take a chained CPI COLA and be happy that my pension isn't frozen in time like so many others are.

It's bad enough that many people in the private sector think feds are overpaid, underworked, and have fantastic benefits. Now we're supposed to be upset because while Social Security benefits are being cut, we're not happy that our COLA is going to be reduced slightly.

Get real, people.

1zingo  
#15 Posted : Wednesday, December 19, 2012 2:51:02 PM(UTC)
1zingo

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MMOB: That's a good GOP (or what used to be only a GOP) position. If you want to follow your line of reasoning to its logical end, then why even kick in for FEHB? Just give retirees access to that program and let them pay the full tab. That'll really save some bucks. However, you already know the answer. It's because all of that was offered as an incentive to recruit talented employees. Like my peers, I'm totally indifferent to what wags in the private sector think. Most of them wouldn't have been able to qualify for my job much less get promoted six times. I get that life in the private sector stinks. That's why I signed on with Uncle Sam. If you're suggesting that I voluntarily lower my standard of living because Walmart doesn't pay as much, I recommend that you get serious. The biggest issue here isn't the solvency of social security. Its that the Administration has signed on to the notion that its suddenly ok to retroactively cut social security and federal retirement benefits and then lie about the impact. The switch from FERS to CSRS didn't go that way and neither did the impending increase in the amount federal employees have to kick in for their pensions. Face it, guy, feds and the elderly are easy targets and the Administration is cynically taking advantage of that. The GOP is relatively immune if this farce get enacted. However, ironically enough, I would expect to see fewer Dems survive the 2014 elections.
Skippy134  
#16 Posted : Wednesday, December 19, 2012 7:58:54 PM(UTC)
Skippy134

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crs1: On the other hand I'm no math major either, I completely missed the accumulated losses in the example. However it is an average loss of about $2000 per year over 20 years.

zingo: There is the adage that politicians don't lose votes in North Dakota by attacked federal employees. An east target until a crisis occurs, then there is the cry of; "Where is the federal government?"

DK_in_CO  
#17 Posted : Thursday, December 20, 2012 12:26:25 AM(UTC)
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Here is an article from RetirementRevised.com that tries to explain this proposed change FYI.

How a "chained CPI" would hurt Social Security beneficiaries

http://us1.campaign-archive2.com/?u=b407c3a5290f581f5c461b8b2&id=9732eaa179&e=e27d7d3b5e

JimEli  
#18 Posted : Thursday, December 20, 2012 12:33:19 AM(UTC)
JimEli

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As a retired Fed, I join with MMOB’s sentiment that the chained-CPI would be a good first step. I see it as one of the few ways politicians can implement a cut to entitlement programs without creating riotous backlash. Social Security and Medicare are already exceeding their tax revenues and now adding to our deficit. This means less tax revenue for discretionary programs, increased borrowing and imagine the snowball effect when interest rates rise. We ALL need to contribute, the end state of our problem is not pretty.
DK_in_CO  
#19 Posted : Thursday, December 20, 2012 12:33:42 AM(UTC)
DK_in_CO

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Here is a Better article from FedSmith that addresses the topic with more details FYI.

http://www.fedsmith.com/2012/12/19/how-bad-is-the-chained-cpi/

1zingo  
#20 Posted : Thursday, December 20, 2012 2:05:48 AM(UTC)
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DK: Interesting article. However, this statement gives me concern: "If this change is implemented, it may make further, more painful losses less likely." Feds have been fair game for the GOP for quite a while. What's new is that the Administration has done little to oppose these efforts. So, anyone who believes that feds should do their "fair share" should consider that the GOP has been straightforward about its efforts to promote the interest of the affluent over those of lower income earners. This includes targeting feds and now even social security recipients. So, I highly doubt that a policy of appeasement is the wisest strategy for dealing with this proposed ripoff.1zingo2012-12-20 10:53:59
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