A CPI for Retirees Is Not Needed Now but Could Be in the Future

GAO reviewed the need for a retirees' Consumer Price Index (CPI) to aid Congress and others in deliberations regarding possible actions to maintain the financial stability of retirement programs.

GAO found that the use of a workers' index to trigger cost-of-living adjustments for the beneficiaries of the four major federal retirement programs had placed an extra financial strain on those programs. That strain can be attributed to the fact that existing indexes are based on underlying expenditure data that do not reflect how retirees spend their money. Compared to others, retirees devote a larger share of their total expenditures to food, fuel, and medical care and a lesser share to transportation, house purchases, and mortgage interest. The Bureau of Labor Statistics (BLS) plans to use a new approach called rental equivalence to construct the CPI, which should bring the existing indexes more in line with retiree consumption patterns. However, significant differences will still exist. The use of CPI-U would be more appropriate than the use of CPI-W, since it covers a larger target population. BLS should compute and publish a hybrid retirees' index once the homeownership component is revised and at least annually thereafter. The monitoring for divergencies should be centralized in one agency; the Office of Management and Budget (OMB) seems the most logical choice to fill that role.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Arnold P. Jones Team: General Accounting Office: General Government Division Phone: (202) 512-7797