CPI-E vs. CPI-W? A Look at What the Diffrerence would be. - The Motley Fool; AMAC Foundation

The issue of how best to calculate the annual cost-of-living adjustment (COLA) for Social Security beneficiaries has surfaced as part of the discussion on reforming this massive senior benefit program, and some have advocated for an approach that better fits the spending patterns of older Americans. Currently, Social Security’s COLA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), measuring changes in the pricing of consumer goods and services purchased by households. CPI-W is referred to in some quarters as a “blue-collar measure,” since it measures spending patterns of urban households that derive more than one-half of the household’s income comes from clerical or wage occupations.

The basic argument over the CPI-W approach has been its inability to keep benefits from losing ground to the inflationary pressures faced by seniors. It’s generally felt that the current methodology does not sufficiently weigh the costs most important to seniors, predominantly housing and medical expenses.

Given the disconnect between COLA’s current math and the economic realities facing seniors, many eyes are turned to the use of a revised measurement, CPI-E, where “E” stands for elderly.  Under CPI-E, spending areas more common to seniors, defined as age 62 and above, are given more weight. In fact, the Biden presidential campaign platform advocated for CPI-E, although no definitive action has been taken in this direction.

So, while the jury remains out on this issue, it becomes interesting to speculate on what actual difference would result from a change to CPI-E. The Motley Fool’s Keith Speights, in a post on their website, takes a look at what this revision would produce in the way of an adjustment, suggesting that the 2024 COLA might have been 25% higher than the recently announced 3.2%. In any event, the CPI-W approach remains in effect for the time being, even though as Speights points out, surveys have shown a preference for the change. It’s likely that the issue will be revisited eventually, when the dialog on Social Security reform resurfaces (hopefully soon).

Read the full Speights article here.

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