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.
