“Senior CPI” COLA Might Be 7 Times Higher Than Actual 2017 COLA - How Fair Is The COLA? Asks The Senior Citizens League

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Based on inflation data through July, the government’s Consumer Price Index for Elderly (CPI-E) would pay a COLA of about 1.5% next year, more than seven times the 0.2% COLA estimated by The Social Security Trustees in their 2016 report.

Actual COLA versus CPI-E

“The current COLA calculation method doesn’t fairly take into account the spending patterns of older Americans,” states TSCL Senior Policy Analyst, Jessie Gibbons

How fair is the annual Social Security cost-of-living adjustment (COLA)? Not fair enough, according to estimates released today by The Senior Citizens League (TSCL). “If the annual COLA were calculated using the government’s ‘senior’ consumer price index (CPI) that measures the spending patterns of Americans age 62 and over, instead of the CPI that’s actually used, the COLA would be about seven times higher in 2017,” says TSCL Senior Policy Analyst Jessie Gibbons. Table 1

Based on inflation data through July, the government’s Consumer Price Index for Elderly (CPI-E) would pay a COLA of about 1.5% next year, more than seven times the 0.2% COLA estimated by The Social Security Trustees in their 2016 report. In addition, while there was no COLA payable this year to Social Security recipients, CPI-E data indicate that the seniors index would have yielded a low COLA of 0.6% this year as well.

“Let’s note that these are not wildly higher COLAs,” Gibbons points out, “but a little bit higher is better than nothing, and that adds up over time,” she explains. For example, a Baby Boomer who retired last year with average benefits of $1,200, would receive about $20,300 more in retirement income over a twenty-five year retirement using the CPI-E,” according to TSCL estimates. While the difference in COLAs are small, especially at first, the higher benefits compound over time. By the end of the 25-year period, TSCL estimates that benefits would be about 6.5% higher using the CPI-E. “And this is normally the time when retirees’ financial resources are at their lowest and healthcare costs are at their highest,” Gibbons notes.

“The current COLA calculation method doesn’t fairly take into account the spending patterns of older Americans,” she says. The government uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an index that measures the spending patterns of people under the age of 62 to adjust Social Security benefits. But younger workers have different spending patterns than retirees and disabled beneficiaries. Younger people tend to spend more on gasoline and things like electronics, two items for which prices have come down in recent years, while older consumers spend more on healthcare and housing. The difference between the two indexes varies from one year to the next, but this year the disparity between the two appears to be the highest on record — driven by spiking healthcare costs and higher housing spending, both of which are weighted more heavily in the CPI-E. Table 2

Expanding Social Security benefits and using the CPI-E to provide a more fair and adequate COLA is a campaign issue, especially among older Americans. According to a recent national survey by TSCL, 63 percent of older voters support adopting the CPI-E to calculate the annual benefit increase. TSCL is lobbying for legislation that would provide a more fair COLA by tying the calculation to a seniors index like the CPI-E. To learn more, visit http://www.SeniorsLeague.org.

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With 1.2 million supporters, The Senior Citizens League is one of the nation’s largest nonpartisan seniors groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit http://www.SeniorsLeague.org for more information.

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Shannon Benton

Mary Johnson
The Senior Citizens League
since: 09/2014
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