An average is the best of the worst, and the worst of the best. So, is the average increase in inflation as reflected in the Consumer Price Index (CPI-W) an adequate amount of change in Social Security benefits for seniors? I don’t think so. Here’s the deal.
Social Security and Supplemental Security Income (SSI) benefits will increase 1.6 percent in 2020 for 69 million recipients, or about 21 percent of our population, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
But — and this is a big but, as we used to say in junior high — seniors don’t necessarily live in urban areas and are most often not wage earners nor clerical workers. Yeah, I know that surprises you. As a result, seniors spend more on health care than the average urban wage earner, and less on cappuccinos.
More specifically, medical care inflation among seniors roughly doubled that of the Consumer Price Index for urban consumers (CPI-U) or the price index for urban wage earners and clerical workers (CPI-W) populations versus all other goods and services (5.1 percent vs 2.8 percent). Also, shelter costs, which seniors spend more of their income on, outpaces overall inflation. At least it has during the last 29 years.
In fact, according to the Senior Citizens League’s calculations, Social Security benefits have lost 33 percent of their buying power since 2000.
Now, about averages. The average, as you know, is calculated by adding up various values and dividing by the number of values. In a normal distribution, the mean (average), median (number in middle) and mode (most frequently cited number) are all the same number.
So, what is the problem with relying on an average? Not all data sets are in a normal distribution. If half of our group wants to go to Miami and the other half, San Francisco, the average would put us somewhere around Sonora, Texas. I’m sure it’s a nice place, but not descriptive of where our group wants to go (bimodal distribution).
Then, if we sample just folks 21 in our group, I’d think Orlando would be high on the list of places to go, what with Disney World and all. But, if we survey only those over 65, then getting anywhere serving an early dinner might be the choice. Still that’s not descriptive of the entire group, bringing us back to the Consumer Price Index.
As noted, the change in Social Security benefits reflects the change in the CPI-W. But they also calculate the CPI-U consisting of households in places of 2,500 or more. Yet, seniors in rural areas aren’t considered.
A better way to determine Social Security adjustments would be to use an index that was based on the cost of living experienced by seniors. If only there was such a thing.
Wait! There is, and the Bureau of Labor Statistics already calculates it. It is the Consumer Price Index for the Elderly, or CPI-E. It surveys households with folks older than 62 and up.
From 1982 through 2011, that CPI-E rose at an annual average rate of 3.1 percent, compared with 2.9 percent for both the CPI-U and CPI-W and has pretty much done so over the past 29 years.
Perfect! Why not just use it?
The CPI-E is not an “official” index. Huh? No, it’s “experimental” and has been for nearly 30 years.
In order to move to “official” status, additional research is needed to understand where seniors are, where they shop and what mix of products they buy. Only problem with this excuse is that they have had the time to do so.
Come on. It’s time for the feds to get on with providing resources to conduct the research, expand the sample size, conclude the analysis and adopt a more accurate consumer price index for Social Security changes.