New TSCL Study:Changes to CPI Cut COLAs More Than $1,000 Over Four Years

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New TSCL Study:Changes to CPI Cut COLAs More Than $1,000 Over Four Years

Changes to the way the government calculates the Consumer Price Index (CPI) are cutting Social Security Cost–Of–Living Adjustments (COLAs). A new study by Advisor editor Mary Johnson found that seniors who had an average benefit of $816 per month in 2000 have lost more than $1,000 over the past four years due to lower COLAs as compared to their COLAs being calculated using pre-1995 methodology. If government projections for inflation were to prove correct, the same seniors could lose another $1500 over 2005 and 2006.

The changes were made in part as a response to Federal Reserve Chairman Alan Greenspan, who testified in 1994 that the CPI overstated inflation. Despite the changes, Chairman Greenspan continues to assert that the CPI overstates inflation and thus pays COLAs that are too high. Greenspan recently recommended that Congress adopt a new “chained“ CPI that would likely cut COLAs by about 25% more.

Despite the call for changing the CPI and cutting COLAs, support for a COLA that more fairly reflects health care costs continues to build in Congress. More than 112 Members of the House have co-sponsored legislation that would provide a more fair COLA by indexing it to The Consumer Price Index for the Elderly (CPI-E).

Sources: 2004 Study: Impact of CPI Changes— Person Receiving Average Benefit of $816 in 2000, Mary Johnson, March 25, 2004. “Economy: House Committee Clears Bill to Study Revisions in the Consumer Price Index,” Gregg Hitt, The Wall Street Journal, June 24, 1994. “Greenspan Urges Social Security Cuts,” Martin Crutsinger, The Associated Press, February 25, 2004.

May 2004