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STRS should adopt an unlimited COLA policy as soon as practical.
Purchasing-power risk. Your pension is only as good as what you can buy with it. Our cost-of-living adjustment is calculated based on a retiree’s pension benefits at the time of retirement. This, along with "banking" adjustments over 3%, guarantees that the longer a retiree lives the more purchasing power is lost.
This table is an example of the purchasing power lost over a 30 year retirement if the actual cost of living rose 3% per year and the retiree received the maximum STRS cost of living increase.
| Year |
Actual Cost of Living |
Monthly Pension |
Difference per Month |
Lost Purchasing Power |
| 1 |
1000 |
1000 |
0 |
0% |
| 5 |
1126 |
1120 |
-6 |
0% |
| 10 |
1305 |
1270 |
-35 |
3% |
| 15 |
1513 |
1420 |
-93 |
7% |
| 20 |
1754 |
1570 |
-184 |
12% |
| 25 |
2033 |
1720 |
-313 |
18% |
| 30 |
2357 |
1870 |
-487 |
26% |
In addition to the STRS COLA formula, wide fluctuations in the price of necessities, or unrepresentative portions of the formula used by the government to calculate the Consumer Price Index could easily reduce our retirees' quality of life. For instance, health care costs take a higher percentage of a retiree's cost of living than is represented in the federal calculations of the Consumer Price Index. The CPI is not age adjusted. The fact that STRS retiree health care costs are paid directly also impacts this example significantly.
The CPI calculation formulas have also changed over the years for political and budget reasons. There is significant reason for the government to underestimate the rise in the CPI in order to reduce the state or federal government's costs for labor increases as well as Social Security and veterans' benefits.
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