Under 55? Congress Has Gutted Your Social Security

If you are under 55, there is a strong likelihood that Social Security will barely be there for you when you retire.   As touching Social Security benefits is the third rail of politics, the way Washington DC achieved the reduction in payouts was by changing the numbers used to calculate future increases.

 

Just as the official unemployment rate is about half the level of the real unemployment rate, Washington DC is changing the way that Social Security benefits are calculated.  To be fair, current adjustments were proposed under the Bush Administration and passed by Congress.  Both Democrats and Republicans are responsible for these adjustments, including the Obama Administration.  None have complained about nor tried to change these adjustments.  It is easy to realize why – current Social Security benefits are unsustainable.  Nevertheless, this guts the social safety net so many people rely on in their senior years.  Within ten years, payouts could be one-third less than they are today.  Within twenty years, payouts could be less than half of today’s levels insuring that many of our elderly will live impoverished.

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The ‘trick’ to reducing Social Security payments over time is by redefining the Consumer Price Index also called the CPI.  What is the CPI?   As the Bureau of Labor Statistics defines it, CPI is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

 

What Washington DC has done is watered down an already watered down CPI with something called a “chained CPI.”  Chained CPI means that if your medical costs go up, you will buy less food.  Seriously.  This is not a joke.  The index will be definitionally changed to exclude inflation.  The theory used to justify this is that consumers only have so much money so it is natural that the consumer will reapportion their limited funds as best as they can.

 

As this change brought on an immediate backlash with seniors, the Powers-That-Be added a kinder, gentler version of the calculations for seniors called CPI-E.  The ‘E’ stands for ‘elderly’.  Using this ‘experimental’ calculation, what they will do is put more emphasis on medical expenses for seniors.

 

Not only do all of these adjustments keep Social Security payments going down relative to real price increases, the adjustments also serve to mute salary increases that business pays workers.

 

By adopting the chained CPI, Washington DC have excluded price increases from the headline inflation rate and the CPI.  As the inflation rate already excludes food and fuel prices along with housing price changes, the CPI adjusts away the last big expense that most American face – medical costs.  Definitionally, Washington DC have achieved price stability despite double-digit increases in food, fuel and medical costs.

 

With Social Security costs increasing at a much lower rate than the already artificially low inflation rate, if businesses would avoid hiring those out of work for 12 months or more and those long-term unemployed would stop “reentering” the workforce, the unemployment rate could be close to 0% come Election Day without the creation of a single job.  Now if they could just define the National Debt.  Hold on – Obama is attempting to do that by netting the Social Security Trust Fund against Federal Debt even those the Trust Fund is deeply underfunded.

 

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