Chained CPI: How Washington Is Likely to Slice Social Security Benefits

social security cardBy Bob Rosenblatt

An arcane change to the way Social Security's annual Cost of Living Adjustments, or COLAs, are calculated may be part of a deficit reduction deal between President Barack Obama and Congress. The revision, known as the "chained CPI," could cut the size of Social Security recipients' benefits starting in 2014.

You could feel a financial pinch if COLAs get tweaked this way, especially if you're fortunate enough to live for decades in retirement.

Chained CPI and the Deficit

Deficit cutters like the idea of switching to the chained CPI because it would save the government an estimated $200 billion or so over 10 years.

In addition to reducing the growth in Social Security, the new math also would slow spending increases for many other federal outlays linked to inflation, like veterans benefits and government salaries, and bring in additional tax revenue because tax brackets are adjusted for inflation annually.

How Social Security Measures the Cost of Living

Here's a plain-English explanation of how Social Security's COLAs might change and what that would mean for you:

Social Security has provided annual cost-of-living increases tied to the inflation rate since 1975. Next year, beneficiaries will get a 1.7 percent increase in their benefits.

Currently, Social Security makes its inflation adjustments using the Consumer Price Index for urban wage and clerical workers, or CPI-W, which measures changes in the cost of a market basket of goods and services.
The chained CPI, by contrast, assumes that people alter what they put in their shopping baskets due to price changes. For example, when beef becomes more expensive, Americans tend to eat less beef and buy more chicken, which is cheaper.

This calculation is designed to be "a closer approximation to a cost-of-living index than other CPI measures," according to the U.S. Bureau of Labor Statistics, which does not endorse one inflation measure over another because "different users have different needs."

Translation: Social Security's cost-of-living adjustments with the Chained CPI would reflect a lower inflation rate than the current CPI-W calculations.

How Much Benefits Could Shrink

The chained CPI would reduce the annual increase in Social Security checks by about 0.2 percent a year, compared with the current measurement, according to the Social Security Administration.

The National Women's Law Center, which opposes moving to the chained CPI because it will reduce future benefits, based on forecasts by Social Security economists. For example, a 65-year-old woman retiring after a lifetime of average earnings could see an 8 percent benefit cut by age 90, compared to what she would receive with the current inflation measure.

Why Women Could Be Most Affected

Switching to the chained CPI would be "especially painful for women," says a National Women's Law Center report, because they have longer life expectancies than men, rely more on income from Social Security and are "already more economically vulnerable." Women receive Social Security benefits three years and eight months longer than men, on average, according to the Social Security Administration.

Single black women would be especially affected, the group says, because they receive the smallest Social Security benefits, an average of $890 a month at 65. With the chained CPI, they might see their checks reduced by $45 a month at 80 and $70 a month by 90.

Because the focus on the national debt is so intense in Washington, and adjusting Social Security calculations is too wonky for many Americans to notice, you can probably figure that Congress and the president will adopt the chained CPI as part of a big budget deal.

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jeld803

why dont these idiots leave social security alone the system would be fine if they hadn't borrowed against it and never repaid it. congress has been stealing from the american people for years they should be prosecuted but no-one willprobably do that so its TIME TO DE-LOUSE THE HOUSE next election just vote out the incumbent get rid of all the blood suckers the 2 party system has failed get rid of them all vote in independents who wont just follow party lines. start out new

December 26 2012 at 1:46 PM Report abuse rate up rate down Reply
usn_veteran01

Want to stop the change in social security calculations… simple… just tell congress and senate they have to use the same calculations as the rest of us.

This also affects military disability… after 30 years of service and/or a medical discharge at 100% a serviceman that put his/her life on the line will get less in 1 year than a senator or congressman gets in 1 month after only serving 1 day in office… they receive thuis lifetime pension even if they are thrown out of office… WTF!

December 23 2012 at 4:50 PM Report abuse +1 rate up rate down Reply
r.heady

This is a crock!! It is a millstone on the neck of the people least able to bear it.I propose a much more equitable solution.Using the current C.P.I.,compute the $ amount the lowest reciprient would receive add 1% of their prior benifit and award this amount to all reciprients.Yes it would reduce the increase to higher income people,but in no way create an existenstiial threat to those reciprients.Sorry for the tardy post.

December 23 2012 at 2:27 AM Report abuse rate up rate down Reply
Patricia

my fellow nuckleheads you people voted for socialism,and now your going to get what u voted for?I personallythink that there should be a recall on this election. we were really duped. THE BRO HAS GOT TO GO

December 22 2012 at 11:45 PM Report abuse +2 rate up rate down Reply
twinkieypaul

How about all politicians and employees on the government payroll take a 14 percent cut in pay. What would the amount of savings be? What would the savings be over a period of one year? What would the savings be over a period of two years? What would the savings be over a period of ten years. The CBO should be able to provide that information.

Following the New Year a drafted petition will be available for your representatives in Washington. Extreme circumstances require extreme measures.

December 22 2012 at 7:07 PM Report abuse rate up rate down Reply
BUCKWHEAT79

DO NOT MESS WITH SOCIAL SECURITY,WE PAID INTO IT ALL OUR LIVES, NOW WE NEED TO GET THE BENEFITS FROM IT. THE GOVERNMENT SPENDS $200 FOR A ROLL OF TOILET PAPER , CUT THE WASTE FROM THIS AND YOU WILL HAVE THE MONEY TO REDUCE THE DEBT.

December 21 2012 at 2:26 PM Report abuse rate up rate down Reply
Dave

Step One: Chop the pols legs off and watch them demand funds.

December 21 2012 at 12:34 PM Report abuse rate up rate down Reply
John Matthew

When it's all said and done I think we need to reflect on taking a serious look at from the grass roots up of those that are being elected. We all need to look at even the local officials and all elected officials in each of our states. We have a Senator in our state who ran for 4 different offices and finally got one the Senate post. OMG! The reason being is his father was a previous Gov. and his last name made people think he would be like his dad. He also ran on the Democratic ticket and rode into the position when all levers and click ons for the reigning party of the voters put him in office. Needless to sat the guy is a unqualified idiot who when you e-mail him on issues he stands behind everything that the White House is doing. Which brings me to the biggest issue today - which is this stupid two party system of ours! COME ON MAN this is archaic! We put ourselves in a class like sheep with an insigna of an elephant or donkey! God help us! Get rid of the party system which sets up barriers. Call ourselves Americans and if you will then call us Independants (meaning we chose whoever we want but not because we are a donkey (ass)!). Equally, I would encourage anyone here that hasn't e-mailed their Rep. and/or Senators on issues that you want them to focus on because it's important to you and your family. Please do so! You will be surprised to see how some of these clowns come back on their remarks to you. Guess what they will all be paid for the rest of their lives from our $'s! Think about it!

December 21 2012 at 11:49 AM Report abuse +1 rate up rate down Reply
OKIE

OBAMA at his best.

December 21 2012 at 11:23 AM Report abuse rate up rate down Reply
downrowner

Consider the word TRAITOR...... We have over 800 military installations areound the world ( they do not want us there ) We pay rent on those installations......and we pay people from the surrounding areas to help clean and maintain them....
LOOK AT THE UNEMPLOYMENT IN THE U.S.A. ( the unemployment benefits are cut off.....)
Foreign Aid....not to be nasty - - but for what -- - - are we paying - - to keep the wars going so we need more military spending ???
OUR INFRASTRUCTURE IS FALLING APART. . . . FORECLOSURES HAVE NOT BEEN ADDRESSED. . . . FOR THE LAST SIX OR SO YEARS THEY HAVE BEEN SAYING THE BAILOUT HAS BEEN RE-PAID.... headline says we are losing money with the GM part of the bailout ??? ( but telling you it has been re-paid with interest ???( that's over-all ???))
SECRET BUDGETS - - - SECRET OVERSEAS PRISONS
A WAR ON DRUGS - - - YOU CAN NOW BUY IN JUST ABOUT ANY CITY. AFGHANISTAN's POPPY CULTIVATION IS INCREASING EVERY YEAR.....
A SPACE PROGRAM ??? AND HOW MANY SPACE CADETS ARE IN WASHINGTON ???
TALK OF RAISING THE AGE REQUIREMENT FOR SOCIAL SECURITY AND MEDICARE ??? AND CUTTING THE C.O.L.A. ON SOCIAL SECURITY
SO - - - ALL ALL OF YOU MY FINE FELLOW CITIZENS - - WHAT ARE WE PAYING TAXES FOR ????? and back to - -
Consider the word TRAITOR.......

December 21 2012 at 11:01 AM Report abuse +1 rate up rate down Reply