From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Calculating Cost-of-Living Adjustments for Retirement
Benefits

Description: More than 60 million Americans receive retirement benefits
from the federal government. This includes older Americans, who receive
Social Security--as well as workers with disabilities, and their
families. As life expectancy in the U.S. has increased, so have concerns
about how these benefits are calculated and increased to include changes
in cost of living. We talk to GAO's Charlie Jeszeck about how cost of
living for retirement benefits is calculated.

Related GAO Work: GAO-20-422, Retirement Security: BLS Should Explore
Ways to Improve the Accuracy, Timeliness, and Relevance of Its
Cost-of-Living Measurements

Released: June 2020

[Intro Music]

[Charlie Jeszeck]: Increasingly there are weaknesses in all of these
indexes that the BLS is calculating. 

[Holly Hobbs]: Hi and welcome to GAO's Watchdog Report, your source for
news and information from the U.S. Government Accountability Office. I'm
Holly Hobbs. 

More than 60 million Americans receive retirement benefits from the
federal government. This includes older Americans who receive Social
Security, as well as workers with disabilities, and their families. As
life expectancy in the U.S. has increased, so have concerns about how
these benefits are calculated and increased to include changes in cost
of living. 

Today, we talked to Charlie Jeszeck, an expert on income security and a
Director in GAO's Education, Workforce, and Income Security Team. Thank
you for joining us, Charlie. 

[Charlie Jeszeck]: Thank You, Holly. 

[Holly Hobbs]: Charlie, millions of Americans count on Social Security
cost-of-living increases to make ends meet. What did we find when it
comes to those increases? 

[Charlie Jeszeck]: Well, Holly, first, a little bit of history. Right
now the Social Security benefits-- when you're in retirement--are
indexed by what they call the CPI-W or the Urban Wage Earner and
Clerical Workers Consumer Price Index. And there's been a debate over
the last 30 years as to whether this is the most appropriate
subpopulation index to be used. Some people argue that there should be
an index that captures the cost of living for older Americans, the
so-called CPI-E. Others say that there should be an index that more
captures how people switch from one product to another when prices
change. For example, if the cost of gasoline goes up, they may take the
train to the city and then that--you would want to capture that in the
index. Now, the upside of both of these alternatives is that, if you use
the CPI-E, that's shown to have been increasing benefits. If you use a
chained CPI, that tends to lower benefits. But, in fact, one of the
things that we found in this report is that the CPI-W itself, the one
that is currently used by Social Security, faces issues of reliability,
timeliness and relevance. 

[Holly Hobbs]: So, Charlie, every facet of life is being impacted by the
coronavirus. Which of these methods be best for calculating cost of
living under that scenario? 

[Charlie Jeszeck]: Currently, with the pandemic, we know that people's
consumption patterns have changed significantly. People are not going to
restaurants, for example. And yet the CPI and the indexes that will be
used, that are being constructed are based on data from up to 4 years
ago where the basket of goods and services that people were purchasing
we're quite different than what people are doing today. The bottom line
in all this is that this creates potentially, you know, areas in the
accuracy of the CPI and in its--certainly its timeliness and in its
relevance. 

[Holly Hobbs]: It sounds like the federal government has access to data
that could better position it to respond to changes in cost of living
and to calculate benefits, but it's not currently using that data.

[Music break]

[Holly Hobbs]: Charlie, what impact could a miscalculation in cost of
living have on people who receive retirement benefits? 

[Charlie Jeszeck]: Well, right now we don't know what the impact is. We
don't know if it's resulting in the CPI being higher than it should be
or that people are getting lower benefits than they should. That's one
of the issues. We don't have a sense yet of how these weaknesses are
manifesting themselves. But there is greater concern that these problems
are significant, that the data are old; the sample size that are--the
people who are being asked to participate in a survey, the fewer of them
are responding; the subpopulations that are focused on are shrinking.
And so this is problematic. And so, if we want to get an accurate
cost-of-living index, an accurate picture of changes in the standard of
living for Americans in these subpopulations and then make sure that
people can get the benefits, we need to take a look at how the CPI is
constructed and whether--and figure out the direction of the
inaccuracies. 

[Holly Hobbs]: Charlie, last question: What is the bottom line of this
report? 

[Charlie Jeszeck]: The basic problem here is that, increasingly, there
are weaknesses in all of these indexes that the BLS is calculating
because of sample size declines, because of lags in the data. And so, we
really need to take a good hard look at the basic methodology behind all
of these indexes before we get into a debate over what the appropriate
index should be. 

[Holly Hobbs]: That was Charlie Jeszeck talking about GAO's recent
review of retirement benefits and cost-of-living adjustments. Thank you
for your time, Charlie. 

[Charlie Jeszeck]: Thank you. It's my pleasure. 

[Holly Hobbs]: And thank you for listening to the Watchdog Report. To
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