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.

By Bruce Kennedy Dec 20, 2012 9:21AM

Image: Social Security cards on clothes line -- Mike Kemp/Tetra images/Getty ImagesIt 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."


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1118Comments
Dec 20, 2012 2:30PM
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Why should we the people suffer because the government mismanaged our money.

Dec 20, 2012 2:29PM
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The Social Security Account as Roosevelt proposed, was intended for workers to put a small amount of their salaries into an account and withdraw some of it over the span of their retirement years.  Since Roosevelt's time, the U.S. government, through their irresponsible 'benevolence' has caused the American population to become dependent upon this inefficient system, which will go broke in a couple of decades.  Adjustments to the SSA retirement-assistance system made to cope with changes in the population and the economic situation, are now causing the SSA to collapse under its own weight. Changes such as families of workers being made eligible to receive payments, cost-of-living adjustments, and disability provisions were added to the program.  People accepted these changes without considering the consequences of where the money would come from.  The benefit amounts now far outsize the amounts put in by the American worker, who has now grown to accept this 'gift' as a 'right'.  Wake up and smell the stench of socialization and redistribution of wealth!  We are never 'entitled' to take out of the pot, more than we put in.  If you do, you will have to answer for it one way or another as you ride the system in its downward spiral.
Dec 20, 2012 2:28PM
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Just remember the third Greatest lye,  I am from the Government, and I am here to help YOU!   The members of Congress are suppose to be Intelligent people, but they have NO COMMON SENSE.  They just vote party lines( just like a lot of people vote in elections), but really don't care about how it affects this country.  Until they can come up with a Yearly Balanced Budget, they should NOT receive ANY PAY--PERIOD.  Also, put them on Social Security, a 401K retirement, Medicare and supplement, just like the rest of us are on, then things would be different.  We sure blew it this past election.  We basically put the same people back in office, and expected different results.  I guess we are the STUPID ones.
Dec 20, 2012 2:27PM
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in other words the senior population in living longer due to all the hype to eat better so they are taking better care of themselves, and now with this new Obama care we are going to be punishes for all of this better care,and the government is going to deprive the seniors of what is rightfully theirs.Sos now after being shorted on the payments they will stop taking the extra care and die sooner,
Dec 20, 2012 2:26PM
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You get less they keep more, simple really.
Dec 20, 2012 2:26PM
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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!

Dec 20, 2012 2:23PM
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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..

Dec 20, 2012 2:22PM
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Stop distributing our money to other people ie free phones and other welfare, and leave the senior citizens to the hell alone.
Dec 20, 2012 2:18PM
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We sent millions of dollars over seas to different countries while among the developed countries the USA has the highest number of children going hungry.  Shame..........
Dec 20, 2012 2:16PM
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I can hardly wait till I get to 95, I can forget pork or beef, I'll just have to worry about catching a few crows or beetles, and maybe a few good roots for my meals.  However I will not have to worry about joining a gym to loose weight, ohhhh what an original idea to get rid of all the old people, just make sure none of us can afford anything to survive.  All that will remain on this planet will be rich fat people who like to talk and make laws.
Dec 20, 2012 2:16PM
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Great.  Here come the sneaky little lawyers and bean counters to pitch up the unintelligible weasel wording to make this a true retirement nightmare.
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.


Dec 20, 2012 2:16PM
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This is just the same bunch of crap that's been coming out of Washington for years. Rob the poor, give to the rich. Read the history of ancient Rome and it's beginning to be like looking into a mirror. We now have pretty much the same type of government operation now that they had back then. Serf's and the rich. The Royalty reigns supreme again in the U.S.A.  Let's face it, they own everything including the government so for the rest of us it's all over.
Dec 20, 2012 2:15PM
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If, at any time, anyone in public,outside of the sitting politicos, tried to do the things to balance their budgets the way the  plitically connected in Washington do, we would be thrown under the jail and sunshine would ,on occasion , be pumped to us. In other words, the process these people use, are at best, illegal and at worst criminally negligent . The process and the persons involved need to be closely examined for collusive activities. The collusion I am referring to, has to do with the funds they are promoting as savings in a system that no one knows how it works. They voted these processes in as law and have no idea as to what they do or how they effect people ,especially those who absolutely connot afford any new costs. These are the same people who complain about our deficet being out of control, but then, on the same day, vote themselves a pay raise. They cut the benefits to a senior citiizen, who, by the way, already paid for their benefits, and out of the other side of their face gave themselve an undue or undeserved pay raise. These individuals say they have our intrest at heart,but in all reality, the only interest the have at heart, is their own. The only time they will stop, is when, we as a society, charge them with a crime, incacerate them sieze all of their possesions and property that we paid for, and start over from scratch. It is amasing to me ,that every family in this country, does balance their personal budgets, but our elected officials could not balance the tires on their car with the assistance of a technition. They have grown so accustom to the premise of taking from what they label as "entitlements", of which ,SS is not, it is funded by its own tax not affiliated with the general tax fund, that they have gotten themselves into an addictive cycle of process that does nothing to fix the real problem. When you fight 2 wars for 10 yrs. the bill has to be paid and the GOP new this at the start and now they want to put that payment off on those who have already retired and are collecting their retirement in the form of their social security and personal retirement benefits.Now these same GOP ,want to pass the buck again, onto someone else, they want to reap all of the benefits of a costly 10yrs. and not pay a dime for it from their own pockets or their collusive friends and constituents. They made a huge profit from all of the defense spending during those years allowed the financial industry to blowup under their leadership, without doing a thing to regulate their friends on Wall Street or the insurance industry, and made more money,but now are complaining about having to pay their fair share of taxes on all of those profits. Real nice people as long as they are not part of my neighborhood, send them to jail!
Dec 20, 2012 2:14PM
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Social security is not "welfare" is is money that in a sense was loaned to the government from workers all of their working years with the intention of receiving in reality a meager low return on their, "Mandatory Investment"

I started paying SS while in the US Navy in 1954 and paid continuously throughout my working years. I am 75 and still have to work to supplement my SS. Had I invested that money into a mutual fund I would have retired a millionaire.  It was not we, the retired that spent our hard earned funds, but rather a group in Washington that acted like a bunch of juveniles with a credit card in a toy store. 

Washington better realize that when the employee makes more than the employer there is what they call a deficit. And if the employer borrows more and more just to stay in business while the employee just keeps on spending and enjoying the employers losses; the end result will be the employer is out of business.

In this case the employer is the people of the USA. I think you all have heard that the US is "A government of the people, by the people, for the people" That makes you the people, the employer and the Government Elected or Appointed, the employee and since you, the governed are paying them, the Government, more than you are making, then the deficit is out of your pocket not theirs. 

So, now ask yourself, are you willing to forfeit, your means of living to further their continued loose spending, only to have them go deeper into debt by more foolish borrowing and spending? Heck, I'll just keep working and working and hope I can make ends meet. The law of average says I'll live to 80+/- but woe to my children, grand children and on and on they will have to pick up the check, that is if they still have a country to pay it to!!! Oh well we sill have Fort Knox...or do we???

Dec 20, 2012 2:14PM
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I do not know why they say social security and medicare are entitlements.  I paid into social security all my working years since I was sixteen.  I pay a monthly amount for medicare part B.  When my benefits increase on social security my payment to medicare part B goes up to.  If the federal government had not tapped into those monies to pay their general fund, there would be adequate monies.  Have the politicians be on the same social security and medicare the rest of us peasants are on and see how fast they do a turn around.  You Democrats voted this guy back in office so now we all have to pay for your poor choices.
Dec 20, 2012 2:10PM
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The retiree in this country can not afford to have their benefits cut.  Some retirees are at the poverty level now.  After all we did work and pay into this fund with the assurance that it would take care of us in our old age.  We don't appreciate being put on the welfare roles.
Dec 20, 2012 2:08PM
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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.

Dec 20, 2012 2:07PM
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this  is  just  another way,  to  cheat   us....

Dec 20, 2012 2:06PM
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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.

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This is a way to take money away from the elderly that  have paid into Social Security all there working years.  Does anyone think that this extra money is going into decreasing the deficit.  I want all of our Senators and Representatives to understand that this money saved is going to hurt our seniors.  I bet my next social security check that this saved money is going into there special funding programs, and who understands what that is.

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