Monday, November 07, 2011

New "Chained CPI" to Cut Social Security Benefits

I think this is a pretty good proposal that actually takes into account how inflation actually works.

The inflation measure under consideration is called the Chained Consumer Price Index, or chained CPI. On average, the measure shows a lower level of inflation than the more widely used CPI for All Urban Consumers.

Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience.

For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.

Of course the chained CPI will result in lower social security increases per year and thus less money for seniors in the long run. 

Under the chained CPI, yearly benefits for a typical 65-year-old would be about $136 less, according to an analysis of Social Security data. At age 75, annual benefits under the new index would be $560 less. At 85, the cut would be $984 a year, and at 95, the annual income loss would amount to $1,392.

That amounts to a $116 a month reduction in a persons social security over that 30 years time. That doesn't sound like a whole lot and you could easily offset the amount with inflation protected bonds if a person will be missing $116 in 30 years. 

Any change that results in Social Security staying solvent beyond the 18-year bankruptcy date is good for me. Then if they want to complete the savings go ahead and cut the social security benefits of people making over a certain income level as seniors. If you are getting big money from your 401K then you really should be getting your social security money cut by a certain amount.

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