Planner Default Rates
What is the Social Security COLA?
The Social Security COLAS, or Cost-Of-Living Adjustments, refer to the annual increases in Social Security's general benefit. Since 1975, these increases have been based on increases in the cost of living, as measured by the Consumer Price Index.
What is the legislative relationship between General Inflation and the Social Security COLA
As per current legislation, the Social Security COLA is tied to the CPI-W. As a result, when general inflation rises, the Social Security COLA also rises, though not by the same rate. As with many financial planning considerations, we do not know whether this will always be the case and this is not the default in Planner.
Why do the Boldin defaults not align with this legislative relationship?
The Boldin defaults align with our Optimistic/Pessimistic model. Pessimistic assumptions are intended to account for market downturns, inflationary increases, and other negative circumstances that may impact your plan. The defaults include high general inflation and medical inflation rates along with low housing appreciation rates and Social Security COLAs. These are negative circumstances that might occur in the future. For example, should there be a reduction in Social Security benefits or the link between general inflation and the Social Security COLA end, Social Security benefits may be lower than currently expected.
Overall, we chose .5% for SS pessimistic COLA because we want to assume the worst, e.g. the government doesn't fully fund it or match inflation. And, we allow Plus users to override the assumptions if they feel a change is appropriate.
How may I reflect the current legislative relationship between General Inflation and Social Security COLA in my plan?
If you would like to reflect the legislative relationship between General Inflation and the Social Security COLA in your PlannerPlus assumptions, you would set your general inflation assumptions, and then align your Social Security COLA lagging a bit behind, as below.
When you apply the Average assumptions, the linear average is applied.
The numbers above are not advice or recommendations, simply an example of how you may want to configure your plan to account for this relationship based upon your research and beliefs.
While you do have the ability to change these values from their defaults based upon your own research and rationale, we suggest you carefully consider the impact any modifications may have on your plan.