There are advocates who see changing from the CPI-W to the CPI-E as a way to calculate the Social Security COLA. As you can see below, that is not the answer. Over 29 years the difference in the COLA was slight. And over some periods the CPI-E was less of an increase.
Some advocates want a guaranteed 3% annual COLA. That seems to me unfair to all working Americans. Why should one segment of our society have a guaranteed increase in income unrelated to actual price increases?
You can look at buying power or the loss of it on a macro basis, but that loss or lack thereof applies unequally across the retired population. Most retirees should have and could have planned for an increasing cost of living in retirement beyond counting on a COLA. But there are exceptions.
A COLA should be applied to those who most need it.
- That means that anyone who retires eligible for the maximum Social Security benefit is not eligible for any COLA for a period of time, say five years. Why? Because at that income level the individual should have other resources to deal with inflation.
- Any beneficiary who pays the highest income based Medicare Part B premium should not be eligible for any COLA. That reflects an income of $500,000 or more and certainly at that income level does not require a Social Security inflation increase.
From December 1982 through December 2011, the all-items CPI-E rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for both the CPI-U and CPI-W. There are several reasons that older Americans faced slightly higher inflation rates over the past 29 years. First, older Americans devote a substantially larger share of their total budgets to medical care. The share of expenditures on medical care by the CPI-E population is roughly double that of either the CPI-U population or the CPI-W population. In addition, over the 1983–2011 period, medical care inflation increased significantly more than inflation for most other goods and services (5.1 percent annually for medical care, compared with 2.8 percent for all items less medical care). Second, older Americans spend relatively more on shelter, and during the last 29 years shelter costs have modestly outpaced overall inflation.
Although the CPI-E generally outpaced the official measures of inflation over the 1983–2011 timeframe, recent trends show different results. From 2006 to 2011, both the all-items CPI-E and the CPI-U rose at an average annual rate of 2.3 percent, while the CPI-W increased 2.4 percent. This turnaround was caused primarily by changes in the relative inflation rates of medical care and shelter, compared with the overall inflation rate. Specifically, the gap between medical care inflation and overall inflation has generally fallen since 2005, and shelter inflation has been rising slightly more slowly than overall inflation over the 2006–2011 period. Source: Bureau of Labor Statistics.
Source of above: The Senior Citizens League