Social Security 2016; Retirement Planning and the CPI-E Act
I was about to post a short article about the lack of social security increases for 2016. The thrust of the article was that often the ‘best’ retirement planning strategies are often thrown off track by the vagaries of the (worldwide) economy and the interpretation of economic indices. To paraphrase one television wit – with the world wide economy more tightly entwined: “When China sneezes; America catches a cold”.
As I was completing my Social Security post, an article arrived in my inbox- a cogent article from our friends at the Center for Retirement Research – CRR titled: “Do We Need a Price Index for the Elderly?” Perfect timing!
Whether older Americans receive a “boost” (Cost of Living Adjustment-COLA) to their Social Security is based largely on the interpretation/analysis of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But there is another “experimental” index – the CPI-E (Consumer Price Index for the Elderly)
In a press release of July 31, 2015, Washington, D.C.–
“This week, Congressman Mike Honda (D-Silicon Valley) introduced the CPI-E Act of 2015, or H.R. 3351. The CPI-E Act will require Social Security programs and many federal retirement programs to use the Consumer Price Index for the Elderly (CPI-E) to calculate cost of living adjustments and thus ensure seniors’ benefits are not diminished over time.”
You can read the entire press release www.honda.house.gov.
One of the key findings of the CRR brief by Alicia H. Munnell and Anqi Chen was stated: “If health cost growth stays modest, the two indexes (CPI-W and CPI-E) may remain similar. But if it surges again, it may be time to use an index designed specifically for the elderly.”
Simply put, “the spending patterns of older Americans are different from wage earners. Or – Stating it yet another way, the elderly spend more on healthcare costs (much less on tuition and childcare) and the costs of that medical care has been on the rise.
The CRR brief took the year 2007 as an example: “the elderly spent more than twice as much on medical care (2007) – relative to their total expenditures –than the population as a whole.”
If you enjoy statistical calculations, delve into the entire brief, available at www.crr.org. Then, determine if you agree or disagree with the analysis and its conclusions. But, in general, we can assume that the lack of a Social Security increase next year has thrown a monkey wrench into many people’s retirement planning calculations.
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