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When CPI-W is no friend of those on SSD

Inflation is always a concern for anyone on a fixed income, like recipients of Social Security Disability. You receive a set amount of income every month and when inflation is present in the economy, it means that the dollar you received on January 1 is worth less than the dollar received 12 months later on December 31.

Inflation is not a new phenomenon, and it has affected individuals on Social Security programs since the beginning. If no adjustments were made to benefit payments, eventually most beneficiaries would experience hardship as they watched their SSD or retirement checks slowly erode over time, as goods and services became more expensive.

The solution was the addition of a Cost of Living Adjustment (COLA). This adjustment uses the Consumer Price Index (CPI) to calculate the inflation rate and increase the disability benefit. Last year, inflation was so low that there was no COLA for 2016. Inflation was low, in part, because of the falling price of gasoline.

Unfortunately for those on SSD, who by definition, are unable to work and who are less likely to need to drive a great deal, the fall in the price of gas may not really benefit them much. This is one of the problems with the COLA. It uses a particular CPI, known as CPI-W, which is designed to account for what many wages earning spend.

It considers things like appliances, groceries, and gasoline, which is probably more relevant for a young family with working parents and some children. It is less relevant for the disabled or elderly, who spend much of their income on doctors, drugs and other healthcare-related products and services.

As we all know, healthcare costs generally exceed that inflation rate of other goods and services. Some have argued SSA should use a CPI better tuned to its clients, the disabled and elderly, but that would require Congress to approve, and because this would likely cause larger COLAs, it does not seem promising that Congress will make such a change.

This year CPI-W is sufficiently low that the COLA will be almost unnoticeable. SSA announced that it will be 0.3 percent or only a few dollars a month to the average SSD recipient.

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