Senior CPI 14 Percent Higher Than COLA

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Senior CPI 14 Percent Higher Than COLA

A “seniors only” Consumer Price Index (CPI) indicates the annual Cost-of-Living Adjustment (COLA) is about 14 percent less than it should be. When data is calculated like the Social Security COLA, the Consumer Price Index for Elderly Consumers (CPI-E) would be 2.4 percent, but seniors and other COLA recipients received an annual increase of just 2.1 percent, effective January 1. In only three other years has the COLA been lower.

The government has tracked the experimental senior’s index for 20 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 are more likely to 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’s 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 $7,802 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 about $824.60 per month. If that person had received a COLA based on the CPI-E, their monthly benefit would be $63 more in 2004, or about $887.60.

Sources: Bureau of Labor Statistics, 10/20/03. “2003 CPI-E Study: Retiree w/Average Benefit 1984,” Mary Johnson, 10/29/03.

March 2004