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Thursday, October 24, 2013

How Social Security Increase Should Be Estimated?

After news about the rumored social security increase for this year emerged, economist and even the recipients, have mulled over the projected minimal increase that reflects recent years’ low inflation rate amid poor economic growth.

Previous news have it that the automatic annual Social Security Cost-of-living Allowance (COLA) increase is likely to be at  1.5 percent only based on the economists’ estimates.

Meanwhile, everyone is still waiting for the official announcement from the federal government. Therefore, the exact amount of COLA increase is still unknown.

Generally, the automatic annual increase calculation is being based on the yearly consumer price index (CPI). However, due to the recent government shutdown, the Labor Department’s report regarding inflation for this year has been delayed. Usually, the said report is being released by October to give the federal benefit program ample time to adapt with the new payment scheme by January. Thus, recipients may be able to enjoy the increase as soon as the fiscal year starts.

If the economists got it right that this year’s increase will be only about 1.5 percent, then that could be one of the lowest increases over decades.

Thus, many economists contest that the standard CPI is not the best way to track how social security recipients, particularly retirees spend. As for them, the CPI is not designed to reflect what senior and disabled recipients are actually spending. Apparently, the same mostly covers what wage earners are paying.

Among seniors, health care and medicines account for a bigger share of their spending. Each year, prices for medical-care services increase by 3.1 percent, exhibiting a much faster pace than overall prices. Transportation and education on the other hand only account for a smaller share of their expenditures.

Economists believe that a better gauge for computing the automatic COLA increase is the Labor Department’s “Experimental CPI for Americans 62 Years of Age and Older”.

One economist explained that the experimental CPI would give a rate of inflation that is 0.1 to 0.2 percentage higher that the standard CPI this year. A social security disability firm, serving greater Los Angeles likewise shares the same belief

However, that is not always the case according to another economist. During the previous decade, there were instances where in the broader index is higher, in others, the experimental index is the higher one.