Senior CPI 28% Higher Than COLA

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Senior CPI 28% Higher Than COLA

A “seniors only” Consumer Price Index (CPI) indicates the annual Cost-of-Living Adjustment (COLA) is about 28% lower than it should be. The Consumer Price Index for Elderly Consumers (CPI-E) was 1.8%, but seniors and other COLA recipients received an annual increase of just 1.4%, a near record low.

The government has tracked the senior index for more than 19 years, but does not use it to calculate the annual COLA. Instead the government calculates the increase using an index that tracks the costs of younger working Americans, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W grows more slowly because younger urban workers use less health care services and expensive prescription drugs than seniors. The CPI-E on the other hand gives greater weight to health care costs and is considered a more accurate measure of true senior costs.

An ongoing study by “Advisor” editor Mary Johnson found that a person who retired in 1984 with an average monthly benefit of $460.60 would have received $7,038.80 more over the years by using the CPI-E rather than the CPI-W to calculate the COLA. The difference compounds over time. Today that person receives a monthly benefit that’s $59.70 lower—enough to cover the monthly Medicare premium.

Sources: Bureau of Labor Statistics, 10/21/02. “2002 CPI-E Study: Retiree w/Average Benefit 1984,” Mary Johnson, 10/21/02.

For a related story see, “COLA 1.4%, Medicare Premium Jumps 8.7%,” at http://www.tscl.org/NewContent/101719.asp.

February 2003