What CPI index does Social Security use to calculate COLA? Why should retirees receive a higher raise than younger workers?

What is the difference between the CPI-U and the CPI-W? Here are the facts‼️

The CPI-U is a more general index and seeks to track retail prices as they affect all urban consumers. It encompasses about 87 percent of the United States’ population.

The CPI-W is a more specialized index and seeks to track retail prices as they affect urban hourly wage earners and clerical workers. It encompasses about 32 percent of the United States’ population and is a subset of the CPI-U group.

The CPI-W places a slightly higher weight on food, apparel, transportation, and other goods and services. It places a slightly lower weight on housing, medical care, and recreation.

The CPI-W is utilized by the Social Security Administration to determine annual rates of increase. See http://www.bls.gov/bls/peoplebox11.htm.

As an aside, the President has proposed for the second year in a row that federal workers receive a 1% pay increase in 2015 (they received no increase in 2011, 2012 or 2013). At the same time Social Security beneficiaries will likely receive a 1.5 to 1.7% hike in benefits. Don’t we have this backwards? Then consider the President also wants a 39% increase in the minimum wage for generally un or low skilled workers on the basis that will help raise the middle class.

So, what we have is:

1⃣ Seniors collecting Social Security receiving a raise greater than all government workers and greater than many, many workers in the private sector.

2⃣ An effort to raise the pay for unskilled workers who are not the middle class at the expense of the middle-class.

I suppose to many people all this makes sense. To me it reflects the politics related to two major voting blocks; the elderly and minorities. It also indicates that despite all the rhetoric, our priorities are not focused on the middle-class because the middle-class pays the cost of all this while for many, incomes are not keeping pace with inflation as low as it may be. It seems the older you are and the more you rely on Social Security income, the better you are treated.

14 comments

  1. Really no connection?…but wait Dick…wasn’t you who brought up the “fact(?)” that Seniors collecting Social Security are receiving a raise greater than all government workers and greater than many, many workers in the private sector. (see your #1 above). I think it all boils down to percentages Dick…the Senior’s raise is based on the COLA and the worker’s on their employers. Both are a function of the free market place. For you to claim no connection when you made the original comparison how do you reconcile that?

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    1. No connection because the COLA is fixed by law and formula. Raises are based on judgement and affordability and hence market forces to a great extent. Federal employees are getting a 1% raise next year when inflation may indicate perhaps 2%. I don’t see much free market influence in the Social Security COLA. One has to wonder why Congress gave up the power of determining COLAs to set them in automatic pilot, at least from a fiscal perspective.

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      1. Really Dick?…no connection?…COLA is tied to inflation and inflation is a function of free market capitalism. Supply and demand causes price increases/inflation. It isn’t automatic pilot Dick for COLA it is a formula based on inflation in the free market. Saying you don’t see a connection to the free market influence Dick makes me think you should consider going back and re-reading your Adam Smith. Remember Dick..no inflation or if there is deflation no COLA increase BUT there is still a Fed increase of 1% if there is no inflation or if there is deflation. You might also consider re-reading Mr. Ryan and me on the issue of how the Fed employees beat the 1% “cap” today’s reply section to this topic in your own column reply section below or is it above..

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      2. Prior to 1975 the COLA was set by legislation. Since then it has been on automatic based on inflation without regard to anything other than the numbers. While you can correctly argue that inflation is connected to markets, the COLA itself is not in my view. An employer evaluating a pay raise will consider inflation, competition for labor, what other employers are doing and affordability considering the impact not only on direct pay, but other things linked to pay such as many benefits, SS taxes, etc. that’s markets at work and why wage increases are still low. The COLA does none of that so I say it is automatic unrelated to markets and especially unrelated to affordability. When there is no judgement to be made once something is set it motion, that’s pretty automatic.

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      3. Well Dick with regards to your comments of today, October 6, 2014, on the COLA it’s obvious you’re not changing my mind and I’m not changing yours but I’m surprised you haven’t taken umbrage with the other programs out there that have yearly increases built into them by law and don’t require any contributions by the recipients. I’m talking about:
        Obama Phones
        Section 8 Housing
        Food Stamps
        Welfare
        Medicaid
        or is Social Security COLA a ‘safe target’ because if you went after the above programs you might be called a “racist” because those programs overwhelming support blacks (12% of the population) who are participating in them at a rate of 30-36% while only about 8% of social security recipients for both old age and disability benefits are African-Americans….it seems like you’re jumping on the bandwagon and picking on the “politically correct” target to me…i.e. old white folks but I could be wrong. Perhaps I’m even being too hasty in pointing this apparent omission out…you may, even as I write this, doing a commentary on the need to do away with completely or stop the increases built into the above programs.

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      4. I’m not targeting the COLA at all. I’m not trying to stop it. I’m merely responding to people who feel they paid for it and deserve it or more. The COLA should be based in some manner on affordability. Or, as part of fixing the financial status of SS, delay all COLAs until the fifth year of retirement or provide COLAs every other year to beneficiaries receiving the maximum SS at the time of retirement. The idea we can continue down the path we are on is just political dreaming.

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      5. Right Dick..what about all the other programs I mentioned…do you feel that they should get their annual COLA raises? You are fixated on social security COLA…what about all those other programs I mentioned…does Dick favor the open wallet program for them? Your silence on the other programs mentioned is deafening. Or should we wait until people are on those programs for five years or provide them the increases every other year if they get a certain amount of dollars? What say you Dick…seems to me you should be in favor of your suggestions being put in place on those programs.. After all “what’s sauce for the goose is sauce for the gander”. Just think of all the money we’ll be saving….I do agree with you Dick the idea that we can continue down the path we are regarding the items below on is just political dreaming…so I’d like to hear more from you on your ideas for saving money on:
        Obama Phones
        Section 8 Housing
        Food Stamps
        Welfare
        Medicaid
        I eagerly await your response on how we’ll curb the spending on them….

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      6. It seems to me our goal should be to make these programs unnecessary. While that will never happen, I don’t see success as expanding such programs but rather as helping people get off of them. Human nature being what it is both for recipients and those who would provide ever more, I don’t know how to solve it absent a major change in our collective view of personal responsibility and accountability.

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    2. In conjunction to the above, SS was Originally designed by liberals, when they meant something, for the SOLE purpose of the (retired) whom have paid into the (system) all their working lives. This account was to have drawn interest everyday and just about a century later would be estimated to be larger that the entire US debt. So in retrospect, one would not even be having this conversation on the CPI, for there would be no need to steal money from the Seniors to give to others to live on, which opens new cans of worms. JMHO

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      1. There was no money stolen from anyone. The incoming taxes in excess of what was needed to pay benefits were invested in US Government bonds just as millions of Americans purchase savings bonds and earn interest just as the SS Trust earns interest. The ptoblem is changing demographics and modifications to the original law that were not paid for by increasing payroll taxes; the automatic COLA is one example.

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  2. Dick, I’m not sure what you mean when you now write, “I see no connection between the COLA based on the CPI-W and workers raises.” Do you mean there should be no logical connection, or that given the data you described, that there is no connection?

    You did write, in bold print, “Don’t we have this backwards?” Which seems to imply that a retiree’s COLA should be less than a federal workers salary increase? So, it seems you do see a connection, but the connection is backwards from what you expect. In other words, you expect a current federal worker’s annual increase to be greater than the retiree COLA. As I stated, this was the case for the decade ending in 2010. I believe I understated the case, the annual increase for federal workers for the decade ending in 2010 was 67% above the CPI-U (I could not easily find the calculation for the CPI-W. )

    Now, the table has turned, and the President and Congress have cooled the federal worker’s annual increase, and for the past several years the increase has been below the CPI-W.

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  3. Regarding federal workers: about half of all federal workers get a “step increase” every year. It is based on the assumption, a questionable one, that the longer you are in a particular job, the more money you should receive based simply on longevity.

    Another fact, more rarely the case, is the one Tommie-Oliver mentions, an actual promotion from one grade level to another, rather than just a step increase inside the same grade level, as mentioned above.

    FYI: For the years 1999 through 2009, federal workers annual pay increase ( not including step increases) exceeded the COLA based on CPI-W, by about 50%. So in the decade ending in 2010, they were far ahead of a decade’s worth of CPI-W COLA’s.

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  4. Wah, Wah, Wah…and the beat goes on and so does the crying about the SS COLA and no you don’t have it backward. But first unanswered is my question to Dick of yesterday…namely “you sound like someone who is in the reduced social security benefit “windfall” category and wouldn’t be eligible for the COLA anyway and pays more than the standard Medicare Part B $104.90 because of means testing…am I right?”.
    Now what happens?…”Jack B” (is he real or a troll) jumps in and calls me names again and casts aspersions on me because of my stance and once again cites an apparent right wing website that agrees with his opinion as “proof” of the rightness of his remarks (yes I did read his cite). Please be more specific in the term “many”…the workers, police, firemen and teachers in the town I live in here in the Northeast have gotten a 2%-4% raise in 2014 and will get that raise again in 2015.
    The Society for Human Resource Management stated the following: ”
    AVERAGE BASE PAY INCREASES FOR 2014 WILL REMAIN AT 3 PERCENT FOR the second year in a row in the U.S.—roughly one percentage point below pre-recession levels—according to the seventh annual Compensation Planning Survey by Buck Consultants”. – See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/2014-salary-increases-flat.aspx#sthash.mXPVT5GQ.dpuf
    AND AS FOR 2015…The latest annual Rochester Business Alliance Pay Trends Survey indicates that 89 percent of surveyed areas employers PLAN RAISES IN 2015, WITH THOSE PAY RAISES AVERAGING ROUGHLY 2.9 PERCENT. Conversely, only 4 percent plan pay freezes.
    So where did you get the 1% RD?…”the government “workers”…how does that old joke go “I don’t work for a living I have a job with the Federal Government”? I didn’t know you cared so much about them RD….but I tell you what…I will take the cited 2.9% average for 2015 if they would make it the COLA increase.
    Oh, and another thing, my son-in-law who works for the Federal Government says they all laugh at the freeze..why because they get around it by kicking you up a pay grade..ie: you’re a GS-7, if you stay there you’re salary is frozen, BUT, the position you are in encompasses pay grades GS-7 to GS-9…so guess what Dick?…they promote you to a GS-8 and you get more than a 1% raise and still stay in the same position.
    My heart goes out to the “many” but methinks they are really the few if they exist at all.
    Ok, my helmet and flak jacket are on….let’s have the incoming from Jack B or whomever.

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    1. There is no one ineligible for a COLA only those who could see their total benefit decline if the Part B premium increase exceeds the COLA amount.

      Virtually no private employers provide a pension COLA, but virtually all public employee plans do. Go figure!

      I see no connection between the COLA based on the CPI-W and workers raises.

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