Wednesday, July 20, 2011


Sheryl J. Bize Boutte
July 20, 2011
In May 2010, I posted a blog entry entitled “The Real Cost of Living As a Federal Retiree.” In that post I expressed my disappointment with the fact that there would be no 2010 Cost Of Living Adjustment (COLA) for annuitants. Little did I know at the time that we would not get a 2011 adjustment either, or that our health premiums would increase by as much as 7%. But my central concern in that post was how the COLA’s are currently calculated by using the Consumer Price Index (CPI):
The CPI uses prices from urban and clerical populations that make up 87% of the U. S. The CPI includes price information from the cost of food and beverages, housing, education and communication, medical care (but apparently not medical insurance premium cost), and recreation. According to the Bureau of Labor Statistics, each month their workers call representatives from these areas who are located in doctor’s offices, retail stores and various service establishments.”
The voices of those who are against the use of the CPI for determining COLA increases have grown much louder since I wrote that post. But what I was not prepared for was the proposed CPI replacement, which would make things even worse for retirees.
The proposed process for changing the way COLA’s are set for retirees would include a new method for determining the CPI. Currently the CPI is based on the costs outlined above and according to the “experts” does not take into account “upper level substitution bias.” This term refers to the belief that if consumers cannot afford something when the price goes up, they simply change their buying habits. While this may indeed be the case, the more troubling aspect of this principle is captured in the example provided by the Federal Times, “…if the price of apples goes up, people are likely to buy fewer apples or switch to a cheaper fruit.” And so, when you include this “upper level substitution bias” it means that the CPI has been overstating the amount of inflation and the COLAS should be smaller!
But it’s the underlying dogma that provides the foundation for this way of thinking that is so troublesome. It says if retirees could buy apples before the change and can’t buy apples under the new process, so what? It appears that those who are floating this proposal, have little or no concern that retirees may have to buy a cheaper fruit or no apples at all. This way of thinking about and treating retirees in this country is unconscionable. It says that debt reduction can be solved in part, by a doctrine of denial. In other words, if you are a retiree, you can’t have that….you can only have this. Under this doctrine, retirees will see their annuities buy less and less while trying to make decisions about whether or not to splurge on that red delicious.
This new philosophy, if allowed to take hold, will continue the step-by-step default on the promise of retirement made to those who served this country. The apples are not just fruit; they are a metaphor for our entire hierarchy of needs. The uncontrolled rise in costs combined with the continued erosion of annuities is not sustainable.
And, as unbelievable as it is that I feel I must say this, say this I will: We have earned the right to an apple a day.