The debate over Social Security continues to rage, as lawmakers argue about whether to expand or reduce benefits. In response to earlier efforts to reduce the rate of increase of Social Security cost of living adjustments, one new proposal actually could lead to bigger COLA increases in the future.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the idea of using a different measure of inflation to make Social Security COLAs. Currently, the Social Security Administration uses the regular Consumer Price Index to determine how much to raise benefits, and previous efforts to use a smaller measure called the Chained CPI has run into huge resistance. Yet some lawmakers think that using a version of the CPI that targets the expenses that elderly Americans have to pay is the smartest move, with the so-called CPI-E arguably reflecting their actual inflation more closely. Dan points out that opponents object to raising the wage base on which Social Security taxes are imposed to pay for the measure, and he concludes that the debate is likely to rage on for years.