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State of the chained CPI

By Jennie L. Phipps · Bankrate.com
Tuesday, February 12, 2013
Posted: 4 pm ET

In Monday's press briefing prior to Tuesday night's State of the Union message from President Barack Obama, press secretary Jay Carney answered a series of questions from a reporter about where the administration stood on benefit cuts to Medicare and Social Security, hot retirement planning issues.

Carney said that while Obama is "willing to make tough choices with regard to entitlement reform," raising the age of Medicare eligibility isn't among the options he would support.

Then the reporter asked, "What about reducing the annual cost of living increases for Social Security recipients?"

Carney said yes to that question, but with caveats.

(Obama) would consider that the hard choice that includes the so-called chained (consumer price index). In fact, he put that on the table in his proposal, but not in a cherry-picked or piecemeal way. That's got to be part of a comprehensive package that asks that the burden be shared; so we don't ... ask seniors to bear the burden of further deficit reduction alone. ... That's just not fair and it doesn't make economic sense -- because the choice would be ... let's do that, put the burden on seniors alone, but not close loopholes in our tax code that are available to wealthy individuals or corporations, but not to average folks or small businesses. And that doesn't make any sense.

The chained CPI is controversial. Retirement organizations such as the AARP oppose it, but it is a way to ask everyone to give a little because it lowers the way Social Security as well as federal retirement plan cost-of-living adjustments are calculated. The reduction isn't huge -- about 0.3 percent according to estimates by the Social Security Administration. For instance, this year's COLA was 1.7 percent. If the chained CPI were used to calculate it, it would probably have been 1.4 percent.

What do you think? Is changing the COLA calculation an acceptable way to manage the rising cost of Social Security?

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2 Comments
Rose White
February 25, 2013 at 3:16 am

The chained CPI undermines recipients' protection against inflation. Older Americans and people with disabilities spend a disproportionate amount of their income on highly-inflated healthcare and prescription drug costs. These items grow faster than overall inflation, and lower-priced alternatives are not available. Benefit cuts keep compounding over time. I much prefer eliminating the cap on earned income that is subject to Social Security taxes than to harming the oldest and poorest Social Security beneficiaries.

JohhnyX
February 17, 2013 at 1:56 pm

There are lots of things that CAN be done. Chained CPI is one. You can also raise the retirement age and you can reduce benefits overall. But all of these things hurt seniors, many of whom rely heavily on SS. Other suggestions include raising revenue by slowly (over a 10 or 20 year period) increasing the Salary Cap and rate of withholdings that employees and employers pay. Another method is to allow seniors to delay receiving SS and then get a lump sum later, saving SS money and getting a lump sum when it is needed. AARP has a SS exercise whereby you can choose from a variety of items that would increase revenue and decrease expenses, and you can see the results in overall funding. You don't have to pick too many options to figure out that benefits could actually be increased without too much pain. Think of SS as a forced savings account for retirement. When I was working, SS deductions were a pain. But that's what most short sighted people think. Now that I'm receiving SS, I wish that more had been taken out of my paycheck, so that my benefit would be greater. Ahh, hindsight. The problem was created by Congress, because they didn't have any foresight.