It’s no secret our government is having problems balancing the books. The problems go more than skin deep, and Congress is considering a variety of options to increase government revenues while decreasing spending. One of the areas where the government is looking to cut spending is with government benefits, including Social Security benefits, military retirement benefits, VA disability compensation, government retirement benefits and similar benefits. But here’s the kicker: You won’t hear the government tell you they want to cut these benefits. Instead, they will tout the benefits of chained CPI.
Chained what? Glad you asked. If you are a military retiree, Social Security recipient or someone who receive VA disability compensation, then you should at least be aware of CPI and how it functions.
Government benefits are tied to inflation. As the cost of living increases, so do government benefits — at least in theory. There are a variety of ways to index inflation, but the method that matters for anyone receiving government benefits is the Consumer Price Index, or CPI. According to the Bureau of Labor Statistics, the 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.”
The Consumer Price Index works like this: The government tracks and measures prices of approximately 80,000 products and services on a monthly basis. As these costs rise, so does the measure of inflation. These costs are used to give a cost of living measurement, which is then tied to certain government benefits, including the aforementioned Social Security, Social Security disability benefits, military retirement benefits, VA disability compensation and more.
This leads us to chained CPI.
How Chained CPI Will Slowly Decrease Your Benefits
Here is how chained CPI works: When the cost of an item increases, people react several ways: they either pay the higher price, they do without the item or they replace the item with a lower cost item. For example, when the cost of steak increases, some people pay the higher prices, some people don’t and will cease to eat it entirely and some people eat less steak and substitute it with chicken or pork.
Chained CPI takes these reactions into account. This can lead to a lower cost-of-living adjustment each year than with the consumer price index alone.
Here is a brief video that describes how chained CPI affects seniors who receive Social Security benefits. You can apply this to your own situation if you are receiving benefits that base their annual Cost of Living Adjustment (COLA) of CPI.
Robert B. Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley and was Secretary of Labor in the Clinton administration.
As you can see from the video, chained CPI results in a lower Cost of Living Adjustment at the end of the year.
Here is the worst part: The decreased COLA increases will compound indefinitely.
Will Chained CPI Decrease Military Retirement or VA Disability Benefits?
If chained CPI is instituted, the answer is yes, your benefits will decrease accordingly (assuming your benefits are tied to the new system). The difference likely won’t be much. In fact, you may not even notice it the first year. A couple dollars a month makes a difference, but it is a small difference, and one that won’t be noticed by everyone — which is exactly what the government is hoping will happen. The problem is that chained CPI would be cumulative and would result in a lower cost of living adjustment every year. That $2 or $3 a month difference might be $5 or $6 a month next year, or possibly higher. Within a decade, your monthly benefits may be significantly lower than they otherwise would have under the current Consumer Price Index measurements. Here are some charts that show how you may be affected.
Why Will Military Retirees and Veterans Get a Triple or Quadruple Whammy?
Military retirees and some other government retirees would receive the brunt of this change, as they could be affected two, three or even more times by a change to the chained CPI method of calculating COLA. For example, a military retiree currently receiving a pension would receive a lower COLA, which compounds over time. The same decrease would apply to the Social Security benefits they are receiving. This decrease could affect them additionally if they receive VA disability compensation benefits. Some military retirees also receive a government pension for their service after they leave the military, or they receive a government pension in addition to a pension from their service with the Guard or Reserves. They would all be affected as well.
If this might affect you, then take it upon yourself to contact your military lobbying group or your Congressional representative.
Photo credit: racineur