The Social Security proposal you need to know about
Lawmakers have suggested a switch to 'chained CPI' to reduce deficits. That could affect how the government calculates Social Security benefits in the future.
It sounds about as exciting as skim milk, but the phrase "chained CPI" could play a role in fiscal cliff negotiations -- and it could impact your Social Security payments.
Republicans are reportedly suggesting a shift to chained CPI as one way of dealing with the deficit, and President Obama appears open to the move. That could impact the way Social Security benefits are calculated in the future.
To understand chained CPI, it's important to get a refresher on the standard CPI, or the Consumer Price Index. This index tracks price changes of goods and services in some 200 categories. The Bureau of Labor Statistics defines the index as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."
The government uses the CPI as one basis for adjusting dollar values on Social Security payments. During times of inflation, for example, the index rises and Social Security payments get cost-of-living adjustments, or COLAs.
"Chained CPI" doesn't just look at the prices of goods and services. It goes deeper into consumer choices and relative price changes. For an example, says the BLS, consider differences in the costs of pork and beef.
If the price of pork goes up while the price of beef doesn't, shoppers might shift away from pork to beef, the Bureau notes. Chained CPI accounts for this type of consumer substitution, while the standard CPI does not.
And here's the important part: In this example, chained CPI would rise, but not by as much as the standard CPI. In fact, the Congressional Budget Office says the chained CPI has grown at a slower rate than the traditional CPI, by an average of 0.3 percentage points annually over the past 10 years.
So what does that mean to you, the taxpaying consumer? Switching to a chained CPI will reduce spending on Social Security and federal pensions while increasing revenue for the government. The differences between the CPI and chained CPI may seem small, but they can add up. As the Columbia Journalism Review points out, the chained CPI "cuts spending and raises revenue, the twin strategies for reducing the federal deficit."
There are estimates the chained CPI could bring in hundreds of billions of dollars in savings for the government while generating billions more in revenue. The unanswered question, though, is at what cost.
In a recent letter to Congress, the National Committee to Preserve Social Security and Medicare urged lawmakers to oppose any deficit reductions plans that would involve the chained CPI.
"This cut would reduce projected benefits for the oldest and most vulnerable Americans who would be least able to afford it," says the letter, which also notes that Social Security Administration officials estimate the chained CPI would bring about a 0.3 percentage drop compared to current cost-of-living adjustments.
"This reduced COLA would result in a decrease of about $130 per year (0.9%) in Social Security benefits for a typical 65 year old," The letter continues. "By the time that senior reaches age 95, the annual benefit cut will be almost $1,400, a 9.2% reduction from currently scheduled benefits. Remarkably, this is a benefit reduction that slightly exceeds the one month’s benefit for the average retiree."
The Christian Science Monitor says supporters of the chained CPI believe it’s a better way to measure inflation and reduce the deficit -- especially as a growing number of Baby Boomers retire and go on Social Security.
But there's also a middle ground in the debate, according to the Monitor: those who argue that the change "should be cushioned by supplementing benefits for older retirees."
More from Money Now
Why should we the people suffer because the government mismanaged our money.
NO POLITICIAN LEFT BEHIND ACT!!! Want to fix gridlock??? Pass a law that sets Congressional compensation, benefits, AND future retirement pay based on a formula that calculates effectiveness while serving in office for a CSR (Consumer, or in this case Citizen Satisfaction) Rating for each year of service! Can't play nice together? Lower pay! The unelected Grover Norquists of the world determining what will and won't be compromised to? Less health insurance and let's say a $400 a month pension payment reduction!!! An enacted system along these lines would cause the system to self-clean itself up in no time!!!
Term limits are the best answer so these Baffoons stop thinking in terms of preserviving their own phoney baloney jobs and more in terms of serving this country by doing what is right! No special interests pulling strings to prevent compromise! I realize that this is a true "pipe dream", but what the Heck...we can always hope!
Me, I just cashed out most of my holdings in the market until the "children" learn to play together and the uncertainty dies down. Should only realize a few percentage points growth, but at least I won't lose the passed years gains!!! That's good enough for me!!!
Best wishes for a Happy and Healthy Christmas and 2013 to all- we will endure!
Does anyone remember when Bush Jr was president and took a news crew to that warehouse of file cabinets stuffed with government IOUs written to the Social Security fund?
He was a good little president while mugging for the camera and pledging that the IOUs would be paid back by the end of his first term. Well, he had two terms and there wasn't a single penny deducted from those rows and rows of stuffed filing cabinets full of IOUs. Not one! The truth is, they added another warehouse full. And we also know what else he did to garner opportunities to mug for camera shots. Two wars on the public credit card.
Our government has done nothing of merit since before WWII when they slipped into the house and passed two bills during a recess. One created the Federal Reserve Bank to be used to finance the government through loans and the other was the Federal Income Tax to be used to pay the interest on those perpetual, ever increasing loans. Most people probably are unaware that the Federal Reserve is not an entity of the government. It's privately owned by twelve different private banks who are getting rich off our backs with the full blessing of our so called leaders..
Just remember this: in the same way that the big print giveth and the small print taketh away, the words you heard verbally from the politicians about what will happen won't even be close to what's delivered in the final draft that you never get to read before they vote it into law.
Meanwhile, nothing much affects the rich.
If congress hadn't raided the "cookie jar"(SocSecAccts) we wouldn't be looking at cutting or trying to find ways to recalculate paying out the benefits.
I suggest we stop all current and future pay raises for the President and ALL members of Congress. All future pay raises will be based on the chained CPI and voted upon by the public in the bi-annual or Congressional elections. One basis for supporting a pay raise would be the amount of cost savings each member developed of the previous 2 years..
In addition, each member of Congress can choose between accepting the Obamacare Health Care OR buying into their own...just like us poor civilians. All laws passed by Congress MUST ALSO APPLY to Congress. Each member of Congress gets 4 round trips per year to meet with home state constituents, vacations days will be limited to Federal Holidays and no more than 30 days vacation per year, non accumulative(use-it-or-lose-it). The Congressional "dining rooms" will be run on the same cost basis as the military chow halls.
Congressional retirement will be tied to the military retirement system, a percentage of base pay starting after 20 years. NO MORE SERVE ONCE & RETIRE!!! Congressmen are no better than our military who serve till eligible to retire!!!
Those changes should save us taxpayers a bundle without raising our taxes to continue paying for Congressional benefits.
Think of the $ that could be saved on welfare programs if they followed thru with the drug testing idea, stopped giving aid to illegal aliens, stopped allowing drug addicts and alcoholics to draw disability and still drink and do drugs and once a woman is on welfare they did not give any increases for the next and the next and the next child she brings into the world.
I have to wonder what the "powers that be" were thinking when they decided to allow such things.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More
More Market News
Remy Cointreau says it was 'adversely affected' by China's anti-extravagance policy.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'