By Pilar Belendez, Aliza Chasan, Maura Ewing
This year, for the third time during the Obama administration, there was no adjustment to Social Security payout amounts.
The reason for not bumping the payout amount is that there was no rise in the cost of living (CPI), according to the Department of Labor. This is largely because of falling energy prices. So, the argument goes, payout rates to retired seniors should also remain steady.
“This should not be happening,” said Mary Johnson, policy consultant at the Senior Citizens League.
Johnson argues that the cost of living rates the government uses, CPI-W, are not accurate to the costs that seniors face—and the cost of living for seniors is rising based on a consumer price index tailored to their needs. The index, calculated by the Bureau of Labor statistics, is called the CPI-E.
When the inflation rate stays the same, cost of living remains steady and the costs of goods and services don’t change enough to mandate a cost of living adjustment (COLA) for Social Security recipients.
However, these calculations are based on an index called the CPI-W, which represents households that earn more than half of their income from jobs—not retired seniors.
The major differences between CPI-W and CPI-E are that CPI-E weights medical care and housing more heavily, because these are the two sectors where elderly people spend more than younger Americans. And, relevant to this year, energy prices are weighted less heavily because seniors drive less often.
“The CPI-W it is not measuring some of the most important buying patterns and costs that relate to older consumers,” said Johnson.
The government uses CPI-W instead of CPI-E as a cost-cutting measure, according to some experts and advocates for the elderly. Monthly payouts would be higher if CPI-E were used, but according to the BLS, the index is not used because being elderly and being a Social Security beneficiary isn’t the same thing.
About a third of Social Security recipients are younger than retiring age and get Social Security benefits as disabled workers or as the widows of deceased workers. Their spending patterns aren’t tracked by CPI-E.
The limitations of the measurement means seniors are losing out. According to a study conducted by the Senior Citizens League, seniors have lost 22 percent of their buying power since 2010 because of slowed Social Security growth rates. In other words, Social Security payouts today are worth about 80 percent of what they were just five years ago. This is related to rising healthcare costs as well as a lack of increases in payouts.
In 2013, the President proposed a measure cost of living adjustments be measured with chained CPI – a metric that would have depressed cost of living adjustments even further. Chained CPI assumes that consumers faced with inflation will substitute higher priced goods for lower priced ones, ground beef instead of rib eye.
Critics of the measure and advocates for retirees argued that seniors have a much harder time replacing goods with substitute items. It can be difficult to find cheaper medical options. The elderly also don’t have as much flexibility in how they shop to get deals and cut corners, according to critics of chained CPI.
Obama dropped the proposal last year even though his plan could have reduced deficits by $233 billion over a decade, according to 2013 estimates from the Congressional Budget Office. His proposed shift in measure could also have cut thousands from retirees’ incomes.
“One of the overriding needs is to try to create an actuarial balance for social security so it’s not going to run out of money,” said Social Security expert Philip Moeller. “So the CPI measure used in the COLA is an important determination.”
Despite the limitations of CPI-E, Rep. Alan Grayson (D-FL) and Rep. Michael Honda (D-CA) recently introduced a bill to tie future COLAs to CPI-E. The bill is pending in the House.