Could There Be a Higher Annuity in Your Future?

By on August 5, 2015 in Retirement with 12 Comments
Congressman Michael Honda (D-CA)

Congressman Michael Honda (D-CA)

The National Active and Retired Federal Employees Association (NARFE) is reporting that Rep. Michael Honda (D-CA) has re-introduced H.R. 3351, the CPI-E Act of 2015, which would adopt a measure of inflation more tailored to the costs of older Americans.

For those who don’t know, the U.S. Bureau of Labor Statistics (BLS) produces a number of different indexes measuring consumer inflation in the U.S.

By custom, their CPI-W index (Urban Wage Earners and Clerical Workers) is used to determine annual adjustments to monthly Social Security benefits, federal and military annuities, veterans’ benefits, and others.

The proposed CPI-E (E stands for Elderly) would use the same information collected for the other CPI indexes but re-weight the data to reflect purchases made by older citizens. The experimental index is designed to better reflect the needs of Americans 62 years and older.

For example, older Americans are more likely to incur medical costs, but less likely to buy new cars than the average household. Thus, while gas prices have been declining, there is little benefit to seniors who drive fewer miles.

At the same time, the steep decline in gasoline costs, down about 23 %, is causing the overall inflation index to turn negative, down about 0.4 % even as other costs continue to rise.

Medical care costs, as measured by the CPI-W, are up 2.4 % since last June.

If the Social Security payments adjustment were calculated based on today’s inflation numbers, there will be no increase in Social Security benefits in 2016 using the current CPI-W index.

The CPI-E has been an experimental index developed by BLS some years ago, but it has never been published on its website a regular basis.

Speaking on the legislation, Honda said, “The costs seniors bear are different than those for younger people. Our current method of accounting for cost of living adjustments does not take that into consideration. We need to recognize this discrepancy and change the formula that determines federal retirement programs to make sure our seniors can enjoy a safe, secure, and healthy life in their later years. Seniors depend on these programs and deserve to be treated fairly.”

It is the position of NARFE that the current CPI-W fails to accurately measure seniors’ costs and spending habits, particularly related to health care.

Individuals ages 65 and older allocate 13 percent of their spending toward health care costs compared to the 5 percent allocated by the general public. COLAs would be larger using the CPI-E and would more accurately reflect seniors’ real costs.

You can read an old BLS news release that explains CPI-E here.

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About the Author

Michael Wald is an independent economics analyst and writer based in the Atlanta area. He specializes in topics related to business, labor, and human resources. Prior to his retirement from the U.S. Department of Labor, he served as the agency’s Southeast Regional Director of Public Affairs and Southeast Regional Economist.