Senior citizens receiving Social Security benefits are concerned about their annual cost-of-living adjustments (COLAs). Studies indicate they are correct in asserting that the inflation measure used to calculate the COLA does not accurately reflect changes in their living expenses.
To provide background on the issue, COLA changes for Social Security recipients are pegged to an index known as the Index for Urban Wage Earners and Clerical Workers, or CPI-W. It is a broad measure of the typical costs incurred by wage earners. Changes in the index are measured from the third quarter of one year to the third quarter of the succeeding year.
The Bureau of Labor Statistics (BLS), the government agency responsible for calculating the index, has found that consumption patterns for people 62 and older are different from those of younger individuals. Health care, for example, accounts for a larger share of expenditures for older people than for younger ones.
This is critical since Social Security constitutes more than 50 percent of the income of two-thirds of seniors. And for one-third of them, it accounts for 90 percent of total income.
In view of this, BLS for several years has published periodically an experimental CPI for the elderly, CPI-E. The index, calculated for those who are 62 and older, includes expenditures for the types of goods and services senior use most often.About two years ago, BLS researchers compared the CPI-E to other measures of inflation over the period December 1982-December 2011. The CPI-E rose at an annual rate of 3.1 percent over the 29-year period, compared with an annual rate of 2.9 percent
for the CPI-W. This is primarily because of higher medical and housing costs for seniors relative to the general population.
The difference may seem insignificant. But using the average monthly Social Security income of $375 in 1982, the CPI-E would have resulted in an extra $50 per month for the average recipient by December 2011.
Recent studies seem to indicate the gap between the two measures may have closed somewhat. This is because of lower medical and housing costs.
From the standpoint of fairness, CPI-E is the most appropriate measure of changes in the cost of living for senior citizens. And it should be implemented immediately.
Wayne Curtis, Ph.D., is a former superintendent of Alabama banks and Troy University business school dean. He is retired from the board of directors of First United Security Bank. Email him at email@example.com.