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Social Security and Inflation - What You Should Know
It may be that there is no perfect way to calculate the rate of inflation and then translate that into commensurate raises for Social Security recipients. So how is it done? The Social Security Administration (SSA) has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) since 1975. The CPI-W is designed to measure how the price of an identical basket of goods and services changes over time. SSA takes the average reading of the CPI-W from the third quarter of the previous year (July through September) as the baseline and compares it to the average CPI-W reading of the third quarter in the current year. The other nine months have no bearing on cost of living adjustments.
But as Sean Williams of The Motley Fool notes, the CPI-W measure is flawed beyond the fact that only three months are used. Social Security bases “raises” on the spending habits of working-age urban and clerical workers who don’t spend their money the same way as retired seniors. Further, seniors spend a larger share of their incomes on housing and medical care. Click here for the full article.
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