In President Obama’s budget proposal for 2014, he has suggested that the cost of living adjustments for Social Security and other retirement benefits be tied to the chained CPI rather than the CPI-W.
While this sounds like just a minor technical adjustment and some would argue that the chained CPI is a more accurate way of measuring inflation, this is not the case when dealing with seniors.
The CPI-W is the Consumer Price Index for Urban Wage Earners and Clerical Workers and is used to adjust Social Security and other federal programs. As implied by the name, it is a price index for workers and so does not include the retired.
Given this it is far from certain how well the CPI-W (or even the CPI-U) would reflect price inflation for seniors. So The Older Americans Act of 1987 had the Bureau of Labor Statistics (BLS) develop a new index for price inflation faced by seniors, the CPI-E . Not surprisingly, the CPI-E is a bit higher than the CPI-W.
So the CPI-W which is used to adjust retirement programs including Social Security actually understates inflation experienced by seniors. And now it is proposed the adjustment actually be lowered further.
If Congress wishes to cut Social Security that is certainly within their rights. (Whether it is a good idea is an entirely different question.)
But let us be honest. This is not merely a technical adjustment to increase the accuracy of inflation adjustment. It is a purposeful decrease in benefits which will hurt many of the elderly.
Jack…interesting subject…I believe the entire social security program needs to be very carefully reviewed by non partisian acturies to determine its viability for the next 35-50 years or so given current stats. Is it viable long term. If not, what are some of the “tweaks” which should be proactively made to keep its viability? I am against just making adjustments now which may or may not work towards the overall viability of the program going forward.
My plan would include:
Overall actuarial reviewSearch out existing waste, fraud, duplication of effort, admin inefficiencies, etc and correct those…realize savings
if the program needs to be tweaked to keep its viability, I would have a list of options prepared with the dollar impact of their being implemented.
I would not mess with the COLA formula at this time without it being a listed viable option among several with a full cost determination.
But…this is all reasonable…never happen…disjointed leadership, poor collaboration, everythig is political. Sad.
Bill
Hi Bill,
I agree we need some sort of nonpartisan (or as nonpartisan as possible) group to find some solutions. Including some actuarial expertise in that group or at least available to the group is important. I believe President Reagan had a commission and they made many recommendations that put Social Security on sounder ground.
But now we see that we need to do a bit more. But it would be a mistake to do anything before we have good idea of our options and how each would work. That said it is probably better to make any adjustments sooner rather than letting the problem grow until we have much bigger problems to fix.
So it really is a tough issue but it needs to be addressed.
Jack
Jack…if the following article has any truth…what steps would you propose to assure the solvency of social security?
http://www.foxbusiness.com/personal-finance/2013/05/31/medicare-outlook-brightens-social-security-outlook-steady/?intcmp=HPBucket
Hi Bill,
Sadly it looks like it is true. I guess the only solutions involve cutting benefits, raising revenue or a combination of the two. I think what we need is a commission (similar to President Reagan’s) to consider all options and figure how each would impact the solvency.
I doubt using a chained CPI would do much but I could be wrong. And I’m not saying it should not be considered. I don’t like it but there are no easy options and we do need to do something. I suppose anything we could think of would have a down-side.
But the sooner we fix it the better. We can get by with no changes for awhile but the longer we wait, the bigger the fix needs to be.
We need a real discussion not just posturing and sound-bites.
Jack
The Consumer Price Index for Urban Consumers (CPI-U, or more generally CPI) is the most familiar gauge of inflation in the US. The data for the non-seasonally adjusted series stretches back a century to January 1913 . But the news of late is about a relative newcomer to the inflation metrics of the Bureau of Labor Statistics (BLS), the Chained CPI for Urban Consumers (C-CPI-U). The BLS has a Frequently Asked Questions page on the Chained CPI that’s been around for a while. At present the page footer says “Last Modified Date: April 6, 2005”.
Thanks. I believe I looked at that but a good idea for anyone expressing an opinion on this to read the BLS on this.