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Social Security Cuts: Why Chained CPI Reduces Retiree Benefits

Millions of retirees rely on the payments that Social Security makes. But with the program under long-term financial pressure, some have proposed changing the way Social Security benefits are adjusted for inflation. One proposal involves using something called the chained CPI.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks more deeply at the chained CPI and what effect it would have on retiree benefits. Dan notes that while current law uses a fixed basket of goods in determining annual cost-of-living increases, the chained CPI uses a basket of goods that adjusts to reflect people's tendency to substitute other goods when one item becomes more expensive. Dan cites figures that suggest chained CPI would reduce annual increases by roughly 0.3 percentage points, emphasizing that while that amount might seem small, it adds up over time to produce marked reductions in monthly benefits. Dan concludes that such measures are controversial but will likely remain under consideration for a long time.

Be smart about your Social Security
Chained CPI is just one way in which retiree benefits are under threat. But to be smart in responding to potential cuts, you need to know how your Social Security benefits work and how you can make the most of them. In our brand-new free report "Make Social Security Work Harder For You," our retirement experts give their insight on making the key decisions that will help ensure a more comfortable retirement for you and your family. Click here to get your copy today.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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