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The CPI-E for April Declines to 3.91%.
U.S. consumer prices remain at elevated levels although coming back abit from January when consumer prices for the elderly hit 4.14%. The stubbornly elevated price pressures put seniors' retirement incomes at risk.
The expenditures most affecting seniors rose sharply above the core rate; Medical Care costs rising 0.5%, Food costs rising 0.7%, Energy costs rising 0.7%.
Healthcare spending will grow on average 6.7% in the next decade, doubling to $4.3 trillion by 2017. In 2008, Social Security only increased for seniors 2.3%.
Consumers and Financial Advisors are urged to make sure retirement income plans remain on track for a realistic conclusion using proven income producing methods.
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Regarding the potential use of the CPI-E Index.
I was searching for a way for Financial Planners and Individuals to better gain a handle on the inflation expectations when planning income generation from their investment accounts in retirement.
I contacted several professors at Wharton and finally the U.S. Department of Labor. The Labor Department releases the CPI-U which is reported monthly and used by most individuals and planners when calculating inflation expectations throughout their financial lives.
However, seniors will be faced with a different set of expenditure weights than the rest of the population. A 67 year old will be spending a larger portion of his/her income on healthcare, prescription medications and travel than a 40 year old.
To address that issue the department of labor has gathered inflation expectation data for this set of the population calling it the CPI-E (Elderly). Since the statistics are based off of the CPI-U instead of specifically being gathered for this population set, there is a greater chance of a sampling error and therefore the index is unpublished and considered experimental but accurate.
However, common sense tells us that the expenditure weighting for this subset is higher in certain areas and the CPI-E does attempt to take into account this fact by adjusting these weightings. .
This data is sent to me monthly by The Bureau of Labor and Statistics. The data, I believe does not take into account sufficiently the higher expenditure for health care that will ultimately face the bulging baby boomer population and their expected increase use of the healthcare system. But for now, the CPI-E is the best index we have.
This adjusted index, for which the adjustments and how they were arrived, along with the limitations can be accessed monthly on this web page. A new index which hopefully will be used by planners to gauge the expenses of their clients as they move into the retirement and withdrawal/distribution phases of their financial lives.
The goal is to provide more accurate inflation data to seniors.
If the index is adjusted too high, then individuals will have a conservative financial plan in place. Either way, the CPI-U being used today for retirement planning is the wrong index to use. The CPI-E is the right index.
We will be releasing the index monthly and hope that financial advisors will use the index to prepare seniors for retirement.
The Limitations of the Unpublished Experimental Consumer Price Index
for Americans 62 Years of Age and Older
In addition to the official CPIs for All Urban Consumers (CPI-U) and Urban Wage Earners and Clerical Workers (CPI-W), the CPI calculates an experimental price index for Americans 62 years of age and older. There are several limitations in the experimental price index which must be considered and understood by potential users of the data. The limitations include:
Expenditure weights: The 2003-04 Consumer Expenditure (CE) Survey is used as the source of expenditure weights for the official CPI series, the CPI-U and the CPI-W. The CE Survey sample was designed to collect expenditure patterns representative of the CPI-U population. The experimental index also used expenditure weights from the CE Survey where the reference person was 62 years of age or older. Since the CE Survey sample design did not specifically target the ‘62 and over’ population, the number of consumer units used for estimating weights in the experimental index was relatively small--about 22% of the urban CE Survey’s sample. The expenditure weights used in the construction of the experimental price index would thus be expected to have a higher sampling error than those used for the larger, official populations.
Areas and outlets priced: The experimental consumer price index is a weighted average of price changes for the same set of item stratum and collected from the same sample of urban areas used in calculating the CPI-U and CPI-W.
Retail outlets are selected for pricing in the CPI based on data reported in a survey representing all urban households. The experimental index also uses the same retail outlet sample. The outlets thus selected may not be representative of the places of purchase for older Americans.
Items priced: The categories of items to be priced are selected using expenditure weights calculated from the expenditure surveys for the urban (CPI-U) population. As a result, the specific item classes and unique items selected to represent the total urban population may not be representative of the experimental index population.
Prices collected: A final source of uncertainty about the appropriateness of using the CPI-U prices for the index of the older population concerns the availability of discount prices for older Americans. For example, senior-citizen discount rates are used in the CPI in proportion to their use by the urban population as a whole. This approach is accurate for the estimation of an index which represents all urban consumers, but would be expected to understate the use of this type of discount in the experimental population.
Because of the above limitations, any conclusions drawn from these analyses should be treated as tentative.
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