Correction on Social Security
Sorry, this is very embarrassing to admit, but one must come clean. That last Social Security post, with its rather sensational claims, was wrong. Future initial benefits are set not by adjusting present benefits by the CPI; they’re set by the retirees’ recent average wages. Those initial benefits are then adjusted for inflation over time. So, shifting to the chained index would lower the cost of living adjustment over a retiree’s lifetime, but it wouldn’t affect initial benefit levels.
But the effects of the switch would still be significant. The currently used index, the CPI-W, has averaged 2.5% over the last decade. The proposed C-CPI-U has averaged 2.2%. Assuming a 20-year retirement (not much more than the average life expectancy at the retirement age of 67 for people born after 1960), by the retiree’s final days, his or her check would be 6.2% smaller adjusted by the C-CPI-U than it would be by the current CPI-W method. Take that out to 25 years, and it would be 7.7% smaller.
This statement, however, is still true: these are not “tweaks.” They’re serious cuts.