By Glenn Ruffenach
- iStockPhoto
An important issue to watch in current and future debates about possible changes in Social Security is annual cost-of-living adjustments, or COLAs. Some legislators and policy makers are calling for using a new formula – a “chained” consumer price index – to calculate these adjustments. But such a change, according to two recent reports, could result in reducing claimants’ benefits.
The reports come from the National Academy of Social Insurance, a nonprofit and nonpartisan educational group based in Washington. (We’ve highlighted the academy in the past – primarily for its excellent guide, “When to Take Social Security Benefits: Questions to Consider.”) The studies are a good introduction to, first, how COLAs work and, second, how changes in COLAs might affect the federal budget – and your monthly Social Security payout.
COLAs, of course, are designed to protect benefits from the effects of inflation. Congress authorized automatic Social Security adjustments in 1972. At the time, the Bureau of Labor Statistics produced a single consumer price index, or CPI. That index measures inflation experienced by urban wage earners and clerical workers – and is still used today to calculate Social Security COLAs. (The original CPI has been renamed the CPI-W.)
In 1978, the Bureau of Labor Statistics developed a CPI to include all urban residents and called it the CPI-U. (That said, this expanded CPI hasn’t been used to calculate Social Security COLAs.) In 1999, the bureau developed a “chained” version of the CPI-U, one that “reflects the extent to which consumers make changes in their purchasing patterns across dissimilar categories of items – such as spending more on fuel and less on food – in response to relative price changes,” according to the National Academy.
Some politician and legislators now favor using this chained CPI as the basis for calculating Social Security COLAs. Some proponents, according to the academy, believe a chained CPI would “more accurately reflect the cost of living.” Others believe it would lower Social Security outlays; still others think it could help reduce the deficit.
But the National Academy – in its two reports titled “Should Social Security’s Cost-of-Living Adjustment Be Changed?” and “How Would Shifting to a Chained CPI Affect the Federal Budget?” – outlines, first, how a chained CPI “falls short of reflecting the living costs of the elderly and disabled” (because it neglects higher out-of-pocket spending for health care.) Second, the reports explain how a chained CPI would “lower benefits for current and future recipients.”
Yes, this can make from some challenging reading. But with Social Security now “in play” on the presidential campaign trail, the academy’s reports are essential reading for voters trying to stay abreast of possible changes to the system.
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Well today, my wife who has served in the army, worked all her life while taking care of 3 children, and 3 grand-children had just received her social security check with a $200 cut.
Well. good thing we have been preparing ourselves and went back to farming while back. Thing is what you people in high rises going to do about it when you get shaken down.
Good Luck !
We want to know will our Social Security remain the same amount for year 2012 like it has the past 2 years? The costs of everything we spend money for just to surive has gone up in price considerably, but NOT our income of Social Security. We always managed in the past to cope with this increase in Cost of Living before this change because we would get a small raise on our SS checks to compensate this increase. What are we to do in the future? We will soon have to dip in to our life’s savings just to get by each month. That is a crime for the citizen’s in our situation as good, clean living citizens that worked our buns off saving for maybe the day we would need help for long term care that Medicare does NOT cover. I am 80 years old now and Husband 77. Too old to get a job! Any advice other than voting for someone we believe will have people like us safe in the future financially. Thanks or any advice ….
Sincerely
Carolyn & Francis Babin
7146 FM 9 South
Waskom, Texas 75692
We want to know will our Social Security remain the same amount for year 2012 like it has the past 2 years? The costs of everything we spend money for just to surive has gone up in price considerably, but NOT our income of Social Security. We always managed in the past to cope with this increase in Cost of Living before this change because we would get a small raise on our SS checks to compensate this increase. What are we to do in the future? We will soon have to dip in to our life’s savings just to get by each month. That is a crime for the citizen’s in our situation as good, clean living citizens that worked our buns off saving for maybe the day we would need help for long term care that Medicare does NOT cover. I am 80 years old now and Husband 77. Too old to get a job! Any advice other than voting for someone we believe will have people like us safe in the future financially. Sometimes we feel the people that are wompletely on welfare sometimes are in better shape than we are or work for our future.
Sincerely
Carolyn & Francis Babin
7146 FM 9 South
Waskom, Texas 75692
3 times the promise of SS has been changed. Breach of Contract?
12% of my income for thirty years. If I die i get nothing.