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Higher Math Could Mean Lower Social Security Checks

Posted By Tamara Lytle On December 6, 2012 @ 11:07 am In Bulletin Today,Politics | Comments Disabled

In what may be a rare point of comity, some politicians in both parties have at least one budget idea they like. And that could be bad news for older Americans.

[1]As “fiscal cliff [2]” battles underscore partisan differences on many tax hikes and spending cuts, there’s increasing talk of changing the way Social Security benefits are calculated. The change is included in the GOP proposal for dealing with the fiscal cliff. And though most Democrats seem to favor keeping Social Security out of negotiations the next few weeks, that doesn’t rule out next year, when the nation’s fiscal problems still will remain at the top of the agenda.

Right now, Social Security benefits rise with inflation, as calculated by the Consumer Price Index. There’s an alternative formula, called the chained CPI, that takes into consideration the way consumers change their spending in relationship to prices. For instance, if prices go up, shoppers might choose more chicken over beef. The chained CPI annually runs about .3 percentage point below the CPI. This year, Social Security recipients will get a 1.7 percent inflation raise. Under the chained CPI, it would have been 1.4 percent – or $30 less a month per $1,000 of benefits.

AARP CEO A. Barry Rand has argued [3] that the impact adds up — to $1,000 less in benefits a year by the time a person is 85 — and AARP released a fact sheet [4] that backs up the argument.

Some advocates for older Americans argue that’s not fair. Social Security recipients already get shortchanged, they argue [5], because the CPI doesn’t put enough weight on out-of-pocket medical costs, which have risen faster than inflation.

On the other side, the current CPI makes government more expensive than it needs to be, the argument goes, piling onto the $16 trillion national debt. Several high-profile bipartisan deficit panels have recommended switching to a chained CPI, and a Bloomberg.com editorial [6] called it a “slam dunk [6].” Even President Obama indicated in the past that he would consider changing the inflation measure.

For now, the White House has taken changes in Social Security off the table, insist Press Secretary Jay Carney [7] and Treasury Secretary Timothy Geithner [8]. Still, the Social Security system is out of balance over the next 75, and the chained CPI would take the program nearly a quarter of the way to solvency.

Find out for yourself by using this Social Security solvency tool [9]. But are there better options to reach solvency than the chained CPI? Use the tool to make your own choices.

Then remember your choices. They might serve you well in the Social Security debate — if not in the next few weeks, maybe next year.


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URL to article: http://blog.aarp.org/2012/12/06/higher-math-could-mean-lower-social-security-checks/

URLs in this post:

[1] Image: http://blog.aarp.org/wp-content/uploads/2012/12/300-fiscal-cliff-terms-to-know-during-budget-debates-politics-washington.png

[2] fiscal cliff: http://www.aarp.org/politics-society/government-elections/info-11-2012/what-is-the-fiscal-cliff.html

[3] has argued: http://www.aarp.org/about-aarp/press-center/info-11-2012/AARP-Opposes-Social-Security-Benefit-Cut-as-Part-of-Lame-Duck-Deficit-Discussions.html

[4] released a fact sheet: http://www.aarp.org/work/social-security/info-12-2012/adopting-a-chained-cpi-targets-the-oldest-poorest-americans-AARP-ppi-econ-sec.html

[5] they argue: http://www.nasi.org/research/2011/should-social-security%E2%80%99s-cost-living-adjustment-be-changed

[6] editorial: http://www.bloomberg.com/news/2012-04-25/chained-cpi-switch-is-a-slam-dunk-even-in-election-year.html

[7] Press Secretary Jay Carney: http://www.whitehouse.gov/the-press-office/2012/11/26/press-briefing-press-secretary-jay-carney-11262012

[8] Treasury Secretary Timothy Geithner: http://blogs.reuters.com/macroscope/2012/12/03/geithners-gauntlet-social-security-is-a-separate-process-from-fiscal-cliff-talks/

[9] Social Security solvency tool: http://www.aarp.org/work/social-security/info-06-2012/strengthen-social-security-youve-earned-a-say.html

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