The 2015 COLA. CPI-W under fire again
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Democrat
Colorado Springs, CO
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Democrat
Colorado Springs, CO
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I went to the CPI Detailed Report for October 2014, Table 24C, Page 110 and used the Chained CPI October to September (2013 - 2014 fiscal year) average monthly indices to calculate the equivalent applicable 2015 COLA rate. The tables also included slightly updated numbers for the prior two years, but these didn't make any difference to the prior years. The theoretical Chained CPI COLA works out at 1.5 percent versus the CPI-W rate of 1.7 percent. That's a 0.2 percent difference. How would that affect benefits for 2015?
The average Social Security benefit paid out in 2014 was $1,294 per month or $15.428 for the calendar year.
For 2015, the average monthly payment will increase to $1,316 for an increase of $22 per month or $264 extra for the calendar year.
If the lower Chained CPI of 1.5 percent was used, the annual increase would be about $233 for the year, or $31 less than the what will actually be paid out for Social Security beneficiaries in 2015. Annual numbers: $15,792 versus $15,761.
However, if you looked at the average CPI's over the last 6 years, the average annual Chained CPI increase works at 1.5 Percent versus 1.4 percent for CPI-W. Not a lot of difference.
AS I said in my post from last year, I don't like the currently used CPI-W for COLA because it only compares three months (July, Aug, Sep) of one year to the same three months of the prior year. The Chained CPI considers 12 months.
I agree, however, that the basket of goods and services for different demographics do not necessarily reflect the spending habits of different senior groups. I spend a lot on travel and leisure now (I'm 68) but I can understand that in another 10 years (if I live that long) my spending habits will change. It is hard to find a single basket of goods and services that applies to everyone.
So I maintain that use of the Chained CPI versus the CPI-W is not that big of a deal, and we shouldn't get worked up about something that has less of an effect on our well being than many of the other provisions in the determination of annual Social Security and Medicare benefits.
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Democrat
Colorado Springs, CO
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It's a year later and once again I updated my spreadsheet of Chained CPI versus the CPI-W used in the Social Security benefit calculations. I do this every year in November or December after the SS Administration announces its cost of living increase for the next year. The Social Security administration has now announced a zero increase for benefits in 2016 based on the 2014 to 2015 change in 3rd quarter costs of goods and services. Using the alternative Chained CPI numbers, I also come up with a zero change for 2016. Over the last seven years, the CPI-W used in the Social Security benefit calculation has averaged 1.2 percent per year. The high was 3.6 percent for 2012. If for the same period, the chained CPI would have been used, the year to year fluctuations would have been less, but the average of the seven years would have been slightly higher at 1.3 percent for the chained CPI (versus the actual 1.2 percent paid). I continue to maintain that the chained CPI is a better means of calculating Social Security benefits. However, liberals are somehow caught up on a the populist fallacy that workers would get screwed if the calculation formula was changed. What Democrats should do is negotiate with Republicans on implementing the chained CPI in return for a change in the basket of goods and services that are more indicative of how seniors spend their money. Unfortunately neither side will give an inch...no compromises. It's like arguing the benefits of trade.
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Although the base line costs for goods and services are markers for the CPI & CPI-W, demonstrating COLA for seniors is getting tougher and may be closely related to the stagnate market. I did see where Thanksgiving meal costs this year will double from last year, it begs to wonder just how truthful the CPI/CPI-W is calculating COLA. Pharmacy drugs have not decreased, but many have substantially increased, which is major burden to seniors on a fixed income. The prices and supply of oil has not helped for calculating a COLA, which oil has been plentiful and inexpensive. Weighing in oil prices as a factor, makes most all goods and services cheaper. I do like seeing some COLA each year, like getting a bonus when working, which I am retired and monitoring well in advance a fixed income. Elizabeth Warren announced recently that she is sponsoring help to seniors in January, which would be a one time $750. 00 check. That is minor help, but nobody would throw that check away. Hillary has on many occasion discussed issues on Social Security, as well as some GOP candidates that mention destroying Social Security and come up with some other "entitlement" funding. GOP does not like the word "entitlement", and would rather see some kind of personal investment by each American. Increasing IRA investment mechanisms for Americans is not the best choice for all. Investments are all about risk and are prone to corruption stealing profits in meager ways through fees. I do challenge people for making investments, because it has done well for me, but it has not been without pain and concern of "WHO" (brokerage) is minding the store. If a person working hard throughout his/her life paying into Social Security for one day having to rely on this for some part of a pension supplement, than our government should continue to support or Americans. The poor thing about Social Security is that may be the only pension many receive. So, for those relying only on Social Security, you could have done better investing, but the main issue here lets support for fair and productive COLA payouts to sustain those that really need it. There are politicians sensitive to this issue and support better help to our seniors, but similarly many a politician seek ways to do away with Social Security. I can image Trump would help Seniors if they would invest in his Empire......what a scary thought.
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Democrat
Colorado Springs, CO
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Yes, I largely agree. The CPI-W cannot account for the spending habits of all Americans, and certainly not a large segment of seniors. However, as a senior myself on Social Security and Medicare, the CPI-W is probably about right. I spend more than most on gasoline in my travels and less than most on pharmaceutical drugs...in fact I spend zero on drugs except for a hospitalization last summer than was largely paid by Medicare. After that ordeal, I can't say how much I love my Medicare. The word "entitlement" as it applies to Social Security and Medicare benefits does indeed have multiple meanings, and Republicans have sought to twist its meaning to "free stuff". Democrats should describe the benefits as a "return on investments" because that's what is. For example, the interest paid in 2014 on Social Security trust fund investments was $94.8 billion for a 3.5 percent rate of return. Try get that in your bank's savings account or CD. Americans have invested in Social Security and Medicare their entire working lives, and the benefits they receive in retirement could accurately be called a return on their investments or, in part, return of capital to use the jargon of Wall Street. It is 100 percent risk free guaranteed by the full faith and credit of the United States government. Would there have been better investments? It really depends on the market timing doesn't it? I consider myself a knowledgeable investor, but I relied on the professional advice of notable brokerage firms. I did a calculation one time and determined that after all the ups and downs in the market, I would have been far better off financially if I had just invested in CDs. The only people who made money off my investments were the stock brokers with their commissions. Social Security was never meant to be the only source of one's funds for retirement. It assumes people have saved over their lifetimes. However, it does provide for the bare necessities of life if everything else is lost.
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Considering investment strategies , Social Security does have investments on the Trust Fund. ssa.gov/cgi-bin/transactions.cgi See here the 2015 report for tell-all investment on your Social Security. Hopefully, somebody is forthright, ethical and wise when investing our securities on social security. Just hit "GO" and see the report.
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