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."


More from Money Now

1119Comments
Dec 20, 2012 3:57PM
avatar
Well I guess this means our Congress and Senators will get an increase, but not us little guys on Social Security.  God Bless America.
Dec 20, 2012 3:57PM
avatar
Time to stop the lifetime bufoons in Washington from their pompous lifestyle and control over America and term limit them and take away their "I'll take care of you fools" attitudes.  It is sinful the uncontrolled and unregulated waste in Washington.
Dec 20, 2012 3:57PM
avatar
CUT THE ****ING SENATORS AND CONGRESS PEOPLES SALARY  IN HALF AND PUT THEIR ****ING **** ON THE SAME SYSTEM AS EVERYONE ELSE AND THAT WOULD SURE SAVE A ****ING LOT. ALL THEY DO IS SIT ON THEIR **** AND ROB FROM THE CITIZENS.
Dec 20, 2012 3:56PM
avatar

Here is what I'm in favor of doing first we cut the presidents and congress pay and benefits.

Then we get out of foreign land where we don't belong... Unless we must be there.

I'm tired of the government balancing the budget on the old, young children, and the poor and disabled. The government allowed business to create the mess to begin with, the housing bubble, the off-shoring of jobs, and so on.

If we can give billions and yet more billions to other nations, but we can't look out for Americans who do most of the living, working and dying to make this nation great, then what kind of democracy is this country.

Dec 20, 2012 3:56PM
avatar
These BOZOS on Capitol Hill, intellectual idiots called Congress,
 will be put out of office, real soon now.

Their day of reckoning is already here.

Dec 20, 2012 3:56PM
avatar
Leona Helmsley said it all - "Only the little people pay"
Dec 20, 2012 3:54PM
avatar
How about reducing the budget by cutting off ALL benefits to politicians who are not actively in office!


Dec 20, 2012 3:53PM
avatar

social security is very simple. you must put more money in or take less out

you can put more in by raising the cap. one idea i like is do away with the cap all together and lower the rate by 2%. brings in much more money and costs almost all business's 2% less in match and 95% of tax payers would pay the same or less than now

other way just simpley raise the rate

take less out equals cuts in benefits. the cpi is one way that reaps huge gains but it's on the backs of those who paid for the program to begin with.

 a easier way is allow 62 year olds to buy into medicare thus meaning more would retire at 62 saving huge money. most people continue to work because of insurance. the more people who retire at 62 the less is paid out and it creates jobs by lower the numbers in the work force

Dec 20, 2012 3:52PM
avatar
I've done the math.  If my SS contributions had been put into a tax differed retirement account that earned 10% interest, I could have retired at 62 with $1,500,000, lived on a very substantial dividend and left my children a $4,400,000 legacy when I died at 80.  If I retired at 62, my job could be taken by a young person.  What would that do to the unemployment rate?
Lyndon Johnson put the SS funds into the general account to allow Congress to spend it and they have been doing that ever since.  The solution is to have Congress' retirement funds transferred to SS, demand that Congress join SS and demand that SS funds only be spent on SS.  If LBJ hadn't moved SS funds to the general fund,  SS would be flooded with money.
BTY, this proposed solution will happen when monkeys fly out of my butt.
Dec 20, 2012 3:52PM
avatar
This is what our elected public servants do!!  They see themselves as pimps, nannies, and "we the people" as their whores and prostitutes!!  Now what has to happen is the following:  Stop the complainting, and be about stopping the legislators who have signed on to destroy the poor, elderly, children, and the disabled!!  We the people" must at this point recall each and every elected public servant that has wrote the legislation and then voted on it!!  Otherwise they are all foxes guarding the chicken house!!  Where is Occupy Wall Street, tea party, black panthers, and the pink party rebels?  It is time for all to come together and recall each and every one of our elected public servants A.S.A.P.!!  
Dec 20, 2012 3:50PM
avatar

ALL OF OUR MONEY GOES OVERSEAS. LET SOME COUNTRY ASK AND THE GOOD OLD USA WILL SEND. I AM A MILITARY RETIREE AND IN MY TRAVELS HAVE LANDED IN 16 DIFFERENT COUNTRIES. NO ONE OF THEM DO YOU FEEL WELCOME YET FOR  THE LARGE IT IS YOUR TAX MONEY THAT KEEPS THEM AFLOAT. LETS KEEP HOME AND SUPPORT OUR  PEOPLE WHO NEED IT. SO NOW OUR GOVERNMENT(SIC) WANTS TO SAY IF YOU EAT STEAK YOU ARE TAKEN MONEY AWAY FROM THE AID PROGRAMS  SO TO CORRECT THIS WE ARE GOING TO MAKE YOU EAT, CHICKEN/,HOT DOGS,/SPAM OR WHATEVER. WE WILL NOT CUT OUR AID PROGRAMS OR THERE PEOPLE WOULD HAVE TO START EATING THE CHICKEN. WE CANNOT TAKE THE STEAK FROM THEM. MY AND MOST OF US ONLY HAVE ONE WAY TO GIVE OUR OPINION AND THAT'S BY THE VOTE. tHIS I PLEDGE TO YOU. I WILL NOT VOTE FOR ANY OF OUR PRESENT LEADERS AS THEY ARE A JOKE. I BELIEVE THAT GIVEN ANY SENIOR HIGH STUDENTS THESE PROBLEMS THEY COULD WORK THEM OUR IN A MATTER OF WEEKS. OUR LEADERS OR NOT DUMB AS A DUMB PERSON COULD COME UP WITH BETTER PROGRAMS  THAT WOULD NOT PUT ANY SENIOR AT RISK.. BILL GATES HAS AROUND 58 BILLION DOLLARS WHY CAN'T HE PAY 15 MILLION A YEAR TAXES., IF HE NEVER MADE ANOTHER DOLLAR HE STILL WOULD LEAVE BILLIONS TO HIS FAMILY WHEN HE LEAVES. BY THE WAY, IF HE APPLIED, HE TO IS ELIGIBLE FOR SOCIAL SECURITY. IT'S NOT WHAT YOU HAVE IT WHAT YOU CAN GET AND OUR GOVERNMENT OFFICIALS GET A LOT AND GIVE AWAY A LOT JUST NOT TO THEIR OWN PEOPLE. OUR SEC OF STATE DOES NOT GET ON AN AIRPLANE TO GO OVERSEA WITHOUT A 50 MILLION DOLLAR CHECK IN HER POCKET. JUST IN CASE SOMEONE ASK.

 

 

 

 

 

 

 

 

 

Dec 20, 2012 3:50PM
avatar

As stated by Sen Sanders:

 

" there is enough money in the Soc Sec Fund

to pay all soc security recipients 'full benefits' for 25 YEARS!!!"

Dec 20, 2012 3:49PM
avatar
Screw the government.  I paid that money into the Social Security and what's mine is mine.  If the theving ____tards hadn't robbed it all those years most of it would stikll be there along with all the interest it was supposed to earn.  Did all of you know that if it had been untouched by the Feds that we would all have been very well off at retirement?
Dec 20, 2012 3:48PM
avatar
Again big for government spenders and little for Social security benefits..  Sounds like we need a union.. sssssssssh  anything to screww over the little guy
Dec 20, 2012 3:48PM
avatar
My 73 year old uncle got eleven Dollars cost of living adjustment, and 'they' want more cuts?...why not cutting other expenses, like billions in union 'sponsored' pensions?...
Dec 20, 2012 3:48PM
avatar

Screw all the REPUBLICANS and DEMOCRATS who would voted for such s#$&*!*............

Reduce their benefits and see what happen. I say get rid of the whole bunch. Better yet keep blaming the President since he get all the blame for whatever happens in the USA and world over. Could it be a resentment on the R E P U B L I C ANS part because of the outcome on the ELECTION?

Dec 20, 2012 3:47PM
avatar

I want to see Congress and the President take a cut in their pay and retirment plan.  This is terrible that they are taking away from the hardworking citizens and taking away their own money.  These are people we elected to protect us and they are screwing the elderly and the sick and the mentally ill.  This is so sad. 

 

Maybe we should request our money back that we put in social security and put it in a plan of our own.  That way the government cannot get their hands on our money and take away what we have worked hard for.

 

Very sad.

Dec 20, 2012 3:46PM
avatar

The federal gov literally STOLE 2 TRILLION dollars from the Soc Sec fund!!!

2 Trillion dollars and they left paper IOUs.

The gov has not repaid any of those IOUs...not a dime!!!

DEMAND they repay every dime...!!!

 

 

Dec 20, 2012 3:46PM
avatar

The government needs to lower their pay standards, we are the people and the government works for us, one person cannot change Washington, we need to make a stand as so many other countries are trying to do, we are the rebels and the government is the tyrant, they vote for their raises, they exempt themselves from everything we have to have mandatory.  Sickening.  I know elderly on SS and are barely getting by, mostly women who never worked outside the home, drawing minimum SS and that can only be anywhere from $400.00 to $700 a month, can any government employee get by with that kind of wage.  The government uses our SS dollars for their pet projects while we have to worry about them taking our benefits away from us.  PEOPLE WE NEED TO UNITE AND TELL THEM WE AREN'T GOING TO TAKE IT ANYMORE.  IF THE POLITICIANS ARE NOT MILLIONAIRES WHEN THEY ENTER INTO POLITICS, THEY CERTAINLY BECOME ONE SOON AFTER.  We the people pay for every last one of their benefits, why?  They can't even do their job, when I was in the work force, if I did my job like they do, I would not of had a job.

 

Dec 20, 2012 3:45PM
avatar
So Congress is like corporate greed officers. We will cut everyone elses pay to increase bottom line results as long as we don't have to cut our own. GREAT....they are as greedy and sleezy as the corporate terrorists that are holding middle class hostage.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

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.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] The stock market finished the Wednesday session on an upbeat note with the Nasdaq (+1.3%) ending in the lead. The S&P 500 settled higher by 1.1% with all ten sectors posting gains.

The benchmark index spent the entire trading day in the green, rallying to new highs during the last hour of action. The tech-heavy Nasdaq, meanwhile, briefly dipped into the red during morning action, but was able to recover swiftly.

Stocks began the trading day with modest gains ... More

MSN MONEY'S