Does the current COLA system adequately protect retirees from inflation? Learn more about how the Social Security Administration calculates benefits.
The small COLA of roughly 1.5 percent anticipated for social security benefits in 2013 may not adequately protection seniors from inflation, according to economic analysts, who’ve revived an ongoing debate over the best way to calculate the Social Security cost-of-living adjustment.
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The Social Security Administration bases its annual COLA on a relatively slow-moving measure of inflation known as the CPI-W, the Consumer Price Index for Urban Wage and Clerical Workers. Advocates for the elderly argue that the CPI-W does not accurately reflect the daily expenses faced by seniors, who spend a disproportionately large share of their budget on shelter and medical expenses, which continue to rise at a faster rate than general inflation.
The Social Security COLA should be based on an alternative inflation index, the CPI-E, or Experimental Price Index for Elderly Consumers, say The Senior Citizens League and other advocates for the elderly. The CPI-E was mandated by the Older Americans Act of 1987, according to the U.S. Bureau for Labor Statistics. A BLS analysis released last spring shows that between December of 1982 to December 2011, according to the BLS, when the CPI-E rose at an annual average rate of 3.1 percent ,compared to an increase of 2.9 percent for the CPI-W.
As a result of current policies, seniors have lost 34 percent of the purchasing power since 2000, according to the Annual Survey of Senior Costs released by The Senior Citizens League last May. While the COLA rose 36 percent over the last 12 years, the expenses paid by a typical senior citizen jumped 82 percent.
“To put it in perspective, for every $100 worth of expenses seniors could afford in 2000, they can afford just $66 today,” Larry Hyland, chairman of the league, said in a statement.
The BLS has urged caution in adopting the CPI-E as the basis for the social security COLA. The agency describes the index as experimental and says it does not adequately reflect the spending patterns of all social security recipients, who may be minor children or younger surviving spouses of covered workers, or disabled individuals.
The Social Security Administration bases its annual COLA on data from the third quarter CPI-W of the preceding year, data due out on Oct. 16.