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 2:56PM
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They take money away from Americans while they continue to give OUR money to non-U.S. citizens.  And then they will want to raise taxes because they can't manage the budget.  Does anyone think our elected officials are looking out for our best interest?     
Dec 20, 2012 2:55PM
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The article implies the government would have additional money available to help the budget deficit, but if the payments to retirees are where the additional funds are comming from, shouldn't the "extra money" stay in the Social Security program. I believe this is just another example of the government using money from protected accounts to promote the illusion that they are actually doing their job.
Dec 20, 2012 2:54PM
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More slight of hand bookkeeping to sink the working stiff taxpayer ever deeper into the bog and quicksand.  Don't forget to buy a case of K-Y jelly when you sign up for the social security that you have paid hard earned dollars into every day of your working life. 
Dec 20, 2012 2:54PM
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Who gave the government the authority to even consider making these stupid changes to OUR SS ?

They have already borroweed (stolen) millions & millions and have yet to pay it back to the fund. This fund does not belong to the govt., it is ours and they have no right.

Dec 20, 2012 2:54PM
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WELL THANK ALL THE ELDER PEOPLE WHO VOTED PRESIDENT OBAMA FOR ANOTHER 4 YEARS OF HEARTBREAK FOR US. YOU THINK THE FIRST 4 YEARS WERE BAD ON US, WHAT DO YOU THINK HE IS GOING TO DO FOR US THE NEXT 4 YEARS? MAYBE GIVE THE YOUNGER PEOPLE ON S.S. MORE MONEY, THEY CAN GET A JOB, BUT WHY WHEN THEY CAN GET S.S. AND FOOD STAMPS, MORE THAN THE ELDER GET. SO BLAME IT ON THE ELDER PEOPLE WHO VOTED FOR HIM FOR 4 MORE YEARS, DON'T  YOU ELDERLY

 PEOPLE CRY, WHEN YOUR PAY STARTS GOING DOWN, YOU HELPED PUT HIM THERE!!!!

 

 

 

 

HELPED PUT HIM THERE FOR 4 MOE YEARS.

Dec 20, 2012 2:54PM
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What Social Security needs is the blotted federal government to stop borrowing from it and leave it alone for those who paid into it.  Cut the fed, leave social security to the rightful beneficiaries.  Also, stop giving it away to anyone with a hangnail and any foreign emigrant that has not paid in and reached the retirement age along with all of the rest of us.
Dec 20, 2012 2:53PM
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Why not come up with a plan that affects individuals that don't need Social Security but receive it anyway.  What about an income limit?  How about individuals who are on medicare but are currently employed, why not make it mandatory to no longer be employed in order to receive medicare?  At least subsidize the cost to the employee but not completely free. 

 

Why not stop paying benefits to retired members of Congress/Senate?  What about their healthcare?  Shouldn't we all have to "plan" for our retirement regardless of the job we hold.  If you want to provide lifetime benefits for anyone do it for the soliders who protect our freedom and our country.  Not the ones who have run us in the ground financially. 

Dec 20, 2012 2:52PM
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BOTH PARTIES CAUSE THIS MESS WE ARE IN STOP BLAMING EACH OTHER FIND AN ANSWER TO THE PROBLEM

Dec 20, 2012 2:52PM
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Yes, the Congress and the President are very dysfunctional and are in almost no way considering what is best for our country with the fiscal cliff situation.  However, we as voters have to take some of the responsibility for these loons.  Why do we keep voting in representatives and senators that don't have a clue what's going on and in some cases, are so old that dementia has set in.  Yet, we keep voting them in.  Why?
Dec 20, 2012 2:51PM
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Thank goodness my husband and I both have 401Ks. By the time I get old enough to get S.S. benefits, I don't think it's going to be much or they might just get rid of it all together. 
Dec 20, 2012 2:50PM
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Just another way for greedy Washington to suck more blood out of the stone. What happened to all the politicians that said they would protect us?
Dec 20, 2012 2:50PM
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Do not touch Social Security.   It has nothing to do with the deficit.

Why give money to wifes that never paid a nicket into Social Security.   If they did not pay into the program then they get no Social Security.   I worked almost all my life since I was 11 years old and it always bother me to see ladies who paid NOTHING still get checks every month.  I  can see widows but not wifes who have not worked a single day all their lives outside their home.

Dec 20, 2012 2:49PM
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You,re right Orecreek-We ARE broke!!  ALL federal agencies need to be reduced! You only have to do a few web searches to discover how bloated we really are .Starting with congress: Congress starting salary is $174K( more if you're party leaders or speaker) and they are automaticly enrolled in the Federal Employee's retirement system after 5 years of service. The FER is composed of 3 elements. 1.SS 2.FER's annuity. 3. 401K which they can deposit up to 17k a year and which the agency matches contributions up to 5%.  YES 5%!! They can tax deduct up to 3K for living expenses  a year. They are eligible to participate in  the Federal Employee's Health Benefit Program and Life insurance program. House members are eligible for MRA's which ranges from 1.3Mil-1.6 Mil for Personal expenses a year and can hire up to 18 permanent employee's whose wages are capped at 168,411K. Each member and one staffer is paid one round trip home.There are 435 Reps and 100 senators. In addition:the White House has a staff of 454. There are 3 kitchens in the WH. which has 4 sous-chefs 1exec.chef and 1 chef usher.WH not require to release salary,but NY Times reported between 80K-100K. Obama reportedly has aprox. 32 Czars most of their salaries not reported. How about ALL the gov. agencies:FCC, education, homeland sec, agriculture, etc, etc. LOOK IT UP!!!!Just to much to list. It goes on and on. And they want to cut SS. REALLY!!!  I personally would not mind IF and ONLY IF  they cut ALL OTHERS!!!

 

 

 

 

 

Dec 20, 2012 2:48PM
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Why does everybody think there is some connection between money and the work?

It only takes two percent of the entire population to grow the for the rest of the population.

Any measure of work and effort is abstract after that.

It simply is a false and common belief  among  the population that what higher compensation means that person deserves more because of the supposed  society  need.

Why do the rich want privacy?

They know what they do has no justification for what they do.

That is why in the Age of Information ,  The Republicans Party are a bunch of Idiots protecting  the 1%

Dec 20, 2012 2:47PM
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Bad choice, do not do this on the back of the seniors, not right..
Dec 20, 2012 2:46PM
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What's good for the goose is good for the gander.  All Government employees and programs  should then be held to the same CPI index for raises/increases.
Dec 20, 2012 2:46PM
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if the damn goverment had not got into our social security in the first place, many a retiree would get ample monies for living. but thanks to Johnson who decided to deal out the money for other programs, social security gets depleated!! if the government wants to use money for other things, then the cabinet members, the president himself and all pas presidents and members of congress should reach into their pockets and use their monies for other things. most of them will not live to see all the monies they can  collect anyway so give back to the people who earned it, put away for it and got taxed on it!!!
Dec 20, 2012 2:46PM
Dec 20, 2012 2:45PM
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Isn't that cute when the F-ing congress wants a raise!  motion is made on the floor, and it's approved within seconds.  Same as the Senate - Oh! I just love that forty foot luxury boat I need a raise because i'm over extended - Well, I'll make an motion for a raise we haven't had one in six months.   And the hand goes up!  the senator is recognized and the motion is made, and more than likely carried.  

WE THE PEOPLE NEED TO START A PETITION, TO CONTROL OUR SPEND THRIFTY EMPLOYEES - YES! EMPLOYEES! - FOR A NATIONAL REVIEW AND VOTE TO CONTROL THEIR MONEY GRUBBING TACTICS.  They are now referring to our SSI as entitlements (horse pucky).  This money came out of our paychecks to ease  our woes into retirement.  Now, like Obama wants to grab our savings for their greed.  If these creeps tried to pull this **** off a century ago, there would be lynching parties.   Obama had the kohonas to appoint an auto czar, too oversee the auto companies money.  And had the nerve too cut retiree's benefits!  Yes, this is no BS.   But, his doesn't look in his own house for cutting expenses - just peers into the private citizens windows too steal what we have earned.  

Dec 20, 2012 2:45PM
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WHY DOES SOCIAL SECURITY AND MEDICARE ISSUES COME INTO PLAY WITH THE COUNTRY NEEDING JOBS??  THIS HAS, AND ALWAYS WILL BE "OUR MONEY" WHICH WE ALL HAVE PUT IN OVER THE MANY YEARS OF SERVICE AND WORK. CONGRESS AND PAST PRESIDENTS HAVE "STOLEN" FROM THIS FUND AND HAVE NOT REPLACED IT!!  ASK YOUR REPRESENTATIVES ABOUT THIS AND ASK THEM JUST WHEN THEY PLAN TO REPLACE IT. IF THEY ANSWER "I DON'T KNOW", GET RID OF THEM AND FIND SOMEONE WHO WILL FIND OUT. AND TELL THEM HOW MANY MILLIONS OF  US THERE ARE WHO HAVE PAID IN AND DON'T LIKE THIEVES STEALING FROM OUR FUND. THEY ARE TREADING ON SOME PRETTY DANGEROUS GROUND AND "BONER'S" FIRST ON THE LIST!!
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