Buying Power of Your Social Security Check - CPI

[sengsational]

This article http://www.marottaonmoney.com/how-underreporting-of-inflation-affects-your-retirement-planning/
covers how the CPI-W calculation reduces the buying power of a future stream of social security checks by about 1% a year.

A 1% underreporting means that after 30 years, your retirement benefit will be 33% lower than what it would have been had the more accurate measure been used.

It covers how CPI-W does not accurately reflect medical costs and that CPI-E would do that more accurately.

CPI-W only assumes that medical care expenses consume 5.7% of a retiree’s budget. Retirees know instinctively this is a low ball estimate. A recent report by the Urban Institute suggests that out-of-pocket medical expenses are on their way to becoming 18% of a retiree’s total budget. To compensate, the Bureau of Labor Statistics (BLS) has created a relatively new CPI measurement targeting elderly consumers known as CPI-E that counts medical care as a more reasonable 11.6% of the household budget. However, Social Security has yet to switch its CPI calculation to the more realistic CPI-E weightings.

It ends with a sample calculation for how to compensate for the reduced buying power over time.
http://www.marottaonmoney.com/how-underreporting-of-inflation-affects-your-retirement-planning/

 

[photoguy]

The source seems really unreliable. On another article on the site they claim 7% inflation which is just ridiculous.

Also the fact that one's personal inflation rate may differ from CPI-W is not manipulation in my books.

 

[BLS53]

Any activist or advocacy group that thinks the CPI-E has a chance of being implemented in this fiscal environment, is living in a fantasy world.

 

[Independent]

This statement in the link is false

No one but the government confuses a chicken wing with a sirloin steak.

The government (the BLS) doesn't confuse chicken and steak. See page 5 here http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

However, the quote in the OP is correct. The BLS does calculate a CPI-E that used different weights to better reflect elderly expenses. This is their result for a 29 year period:

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.

Consumer Price Index for the elderly : The Editor’s Desk : U.S. Bureau of Labor Statistics

So, if I think the CPI-E is a better measure, it seems that I should plan on losing about 0.2% of buying power each year (vs. the CPI-W).