Chained CPI - SS loss Calculator
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donheff
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Interesting. A significant although not huge cut - looks like about $159 per $10K SS per year. I will face it on my Federal pension. I'm willing to cough up my fair share but it is easier for me than many. I suspect chained CPI is in our future sooner or later.
US wage growth has traditionally outpaced inflation, and SS payouts have been pegged to wage growth rather than to consumer inflation.
Now, globalism and increased competition with inexpensive foreign labor are decreasing the growth rate of US wages. At the same time, the US has borrowed a lot and increased the money supply, both things that can be expected to drive up prices on goods (as shown int he CPI). So, if we are serious about keeping SS solvent, this may prove to be precisely the wrong time to shift from pegging payouts to wages and instead pegging them to CPI.
We don't know if CPI or wages will grow faster in the future, but we do know:
1) that the system is underfunded
2) that if wage growth (that impacts the amount payed in to SS) is lower than the growth rate of benefits, then the current underfunded status of SS will grow even worse.
I'd be in favor of adjusting the payouts each year to whichever is lower: wage growth or chained CPI.
Now, globalism and increased competition with inexpensive foreign labor are decreasing the growth rate of US wages. At the same time, the US has borrowed a lot and increased the money supply, both things that can be expected to drive up prices on goods (as shown int he CPI). So, if we are serious about keeping SS solvent, this may prove to be precisely the wrong time to shift from pegging payouts to wages and instead pegging them to CPI.
We don't know if CPI or wages will grow faster in the future, but we do know:
1) that the system is underfunded
2) that if wage growth (that impacts the amount payed in to SS) is lower than the growth rate of benefits, then the current underfunded status of SS will grow even worse.
I'd be in favor of adjusting the payouts each year to whichever is lower: wage growth or chained CPI.
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grasshopper
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Yikes, quite an eye opener. Thanks for the link.
The AARP calculator begins with the line
Quite misleading, because chained CPI will slow the rate of increase but not cut anything.
johnrlawjr
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Thanks for posting. It that will help keep the system solvent, I can handle it. It could be worse.
jclarksnakes
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+1. And it will cost me more than it will for most people.
Tadpole
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I estimate the impact on my husband and me is a little over $1100/year (2 SS and one FERS pension).
I guess for many on this forum, the impact can be absorbed. However, for those less fortunate, the impact can hurt.
I think chained CPI is BS, when billionaries are collecting benefits. I've seen Ken Langone on CNBC more than once indicate the government should take away SS/Medicare from the ultra wealthy, and he wouldn't have a problem with it; he says "take it away, it won't affect my life at all".
I think chained CPI is BS, when billionaries are collecting benefits. I've seen Ken Langone on CNBC more than once indicate the government should take away SS/Medicare from the ultra wealthy, and he wouldn't have a problem with it; he says "take it away, it won't affect my life at all".
GolfingDuo
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Brett_Cameron
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I wish they had posted the assumptions and projections they used for the calculator, such as projected wage growth, projected CPI, projected chained CPI.
Brett_Cameron
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IIRC, a person's benefit amount is based on the person's SS-taxable wages indexed to average wage growth until the age of 60 and then it has been inflated by the CPI (COLA). From what I understand, the move to CCPI will change the future COLA only, not the Primary Insurance Amount which will remain indexed to the average wage increases prior to age 60. Since the CCPI is slightly lower than CPI, the future COLAs will be less.
mickeyd
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Ok. Can I have it? Looks like my number is +$21K/20 yrs.
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powerplay
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The calculator says my change over 20 years will be $38k so that's starting to sound like real money!
photoguy
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One of the pieces of proposed Social Security revision, and how it will affect you in $$$. The AARP Calculator.
AARP
Now, understanding Chained CPI is another story.
I'd be cautious about using the AARP calculator. They don't seem like an unbiased source of information here.
foxfirev5
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Looks like about a 1100 -1200 hit per year for me. Not a huge deal but if the hits keep coming....
nvestysly
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+1
I don't know if the calculator is accurate or not. At a minimum it's based on projections and who knows what will actually happen in the future.
I've read some articles and seen some TV interviews on CCPI. In general I think it makes sense. CPI in its current form is definitely dated. Is CCPI the answer? I don't know but I'm willing to entertain the idea.
AARP is not an unbiased source of information in my opinion. This seems obvious when the calculator has a big button below the results to "Contact Your Legislator."
Yea, I mean the billionaires only put in way more proportionately than they'll ever get out. Screw em!
It's underfunded & something needs to be done. Believe gradually raising ages from 62 & 67 to 65 & 70 is right to do too. Afterall, we're living way longer than when this program started. If you get disabled between 62 & 65, still covered by disability payments.
AARP scare tactic. They don't know what inflation is going to be, much less know what the difference between CPI-W and Chained CPI will be. There is no absolute percentage difference between the 2 formulas. The difference will vary from year to year, just like any CPI indicator. Given BLS has only calculated a Chained CPI since 2003, makes future projections even more speculative. You can't have a calculator with just the annual benefit and some future decade, and expect to come up with any figure close to being accurate.
This is the problem with entitlement reform. One side doesn't want any changes at all, and the other side wants to scrap the system. There's got to be a middle ground somewhere. AARP ranting about Chained CPI, is like complaining about not getting an extra slice of bread, while the other side plans to take your whole dinner away.
This is the problem with entitlement reform. One side doesn't want any changes at all, and the other side wants to scrap the system. There's got to be a middle ground somewhere. AARP ranting about Chained CPI, is like complaining about not getting an extra slice of bread, while the other side plans to take your whole dinner away.
Let's keep it friendly, folks.
Independent
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I couldn't find those assumptions either. But, I can reproduce the numbers assuming this:
Wage growth is irrelevant (because CPI is used for post-retirement adjustments)
CPI growth is 0%
Chained CPI is CPI - 0.292% annually
1) Note that the result they show is not the annual adjustments, it's the sum of all adjustments through that year (so if you pick 5 years, it's the sum of 5 numbers)
2) The point of this suggestion is to reduce SS costs. The SS actuaries have estimated the impact on SS finances here: Long Range Solvency Provisions (Item A3)
They use an annual difference of 0.300%. I'm not sure why I had to use a slightly different number to match the AARP calulation, but the two numbers are very close.
I'd say that (1) is partially misleading. Some people will assume the AARP number is the sum of all adjustments up to that year, others will assume it's the impact in a single year.
I'd say that (2) is reasonable. This is largely about trade-offs - How much does this improve SS finances? vs. How much does this impact individual benefits? So it makes sense that the AARP would use the same assumption as the SS actuaries.
This may earn me a warning, but I've been involved in understanding the government CPI calculations since the early 1990's, and while I don't quarrel with the way it has been used, nor the effect on the economy, the "means" of calculating the different versions of the CPI, are, at the least, suspect.
What used to be open and above board on the government site, is now not shown... namely the constitute of the basket of goods and the shopping venues used to establish the values that comprise the CPI.
While I don't recommend this site, since it has a negative bias, it does point to a difference between actual inflation and that which is measured by government statistics.
Alternate Inflation Charts
Since the chained CPI derives from the basic CPI, the relative differential would still obtain, simply shifting from absolute to incremental adjustments.
For many ER members, Social Security is not a cornerstone for financial security, but for the vast majority of retired Americans, it comprises the heart and very basis for security during the retirement years.
In my own case, I shouldn't give a damn, but I do think continued inroads into "entitlements" will eventually (perhaps in the next ten years) cause social problems, and unrest.
What used to be open and above board on the government site, is now not shown... namely the constitute of the basket of goods and the shopping venues used to establish the values that comprise the CPI.
While I don't recommend this site, since it has a negative bias, it does point to a difference between actual inflation and that which is measured by government statistics.
Alternate Inflation Charts
Since the chained CPI derives from the basic CPI, the relative differential would still obtain, simply shifting from absolute to incremental adjustments.
For many ER members, Social Security is not a cornerstone for financial security, but for the vast majority of retired Americans, it comprises the heart and very basis for security during the retirement years.
In my own case, I shouldn't give a damn, but I do think continued inroads into "entitlements" will eventually (perhaps in the next ten years) cause social problems, and unrest.
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