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.
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Dale says
Good Anton,
If your are like me you don’t even have to worry about govt. money.
I spent 6 yrs in the Army Nation Guard, and don’t even get a DD-214, or any
benefits . So not everyone is getting a little extra just because they served our Country.
Sgt E5 Dale
Anton Ivanov says
This is a very unfortunate development, which shows that it’s more important than ever not to completely rely on government benefits for income during retirement. You often cannot change the system, but you can adapt to the changing environment. That’s why I am a firm believer of having multiple assets which produce multiple income sources.
Ryan Guina says
Agreed, Anton. A steady cash flow from a military or government pension, social security benefits, or VA disability pay is a great benefit to have, but it may not be enough. It’s also completely our of your control. It’s always a good idea to have additional savings such as the TSP, IRAs, rental properties, a small business, or other investments or sources of income. My preference is to have as many income streams as reasonably possible.
Don Koob says
Why do these people have to keep screwing with us? Most of the S.O.B’s never served a day in the military. After all they are “POLITICAL BLOODSUCKERS” that claim to be on our side, when in actuality they are just out for themselves. If they would pay more attention to getting rid of all the illegals that we are supporting and look at all the people that are sucking off the welfare system, that alone would bring back alot of revenue. But with all of the “BLEEDING HEARTS’ in DC that isn’t going to happen. Our system can only support so many people, after that it is going to break, and it isn’t far off if it hasn’t broken already. Plus we have this rediculous war that we are fighting. It’s time to wake up and take a real serious look at who we have in Washington and get them the hell out of there
Guy Slater says
I’m one that, supposedly, would be included in as a “triple” affected recipient. DVA Disability, Military retirement (received as CRSC), and early SS retirement (before age 66.)
Reich and you (Ryan) are both correct in assuming that Chained CPI will effect my earning benefits, and that they will be cumulative. However, neither of you take into account the actual amount received. At present, I “earn” more that 175% of Reich’s stated average for SS retirees. I’m a retired E-6 receiving 70% DVA disability.
As my late father used to tell me, “Figures don’t lie, but liars can figure.” Your figures really don’t lie, but, as far as I’m concerned, you, and Mr. Reich, are skewing the figures to pitch hype.
Ryan Guina says
Thank you for sharing your point of view, Guy.
I understand where you are coming from, but I don’t believe I am skewing the numbers. The Washington Post article I linked to (found here) shows an example of how Chained CPI would affect Social Security benefits over time. They example they used assumed benefits starting in the year 2000 and running through 2012. Using the current COLA format, the recipient would earn $23,832 a year in 2012, or $22,560 a year under Chained CPI, a difference of $1,272, or more than $100 a month.
This is a substantial amount of money for many people on fixed incomes. It’s also important to keep in mind that as the Cost of Living Adjustments are getting smaller under the Chained CPI format, the value of the dollar is decreasing through inflation, further decreasing the purchasing power of the benefits.
Chained CPI would affect tens millions of Social Security recipients, government and military retirees, and veterans. Many of the individuals who would be affected don’t have the luxury of reentering the workforce to increase their income. For many, they have fixed and finite incomes, and each dollar lost has a real impact.
As you mentioned, there are many other people who wouldn’t feel the impact in the same way. For example, those still in the workforce can factor these changes into their retirement planning and adjust accordingly. There are also retirees who have multiple retirement incomes or were able to save a large nest egg during their working years. They too may not feel the impact as much as some others. But just because it doesn’t affect one group of people as much as others doesn’t mean they should discount the impact this could have on people less fortunate.
Like all big policy changes, the impact will be felt differently by everyone.
Matthew says
Please leave the military retirement systems alone. disabled military personnel have given enough.
John says
The biggest hit all of our retirement, SS and VA monetary benefits is the depreciation of the value of the dollar. We receive little true COLA increase because the rise in prices caused by the discounted dollar value, occurring because of Quantitative Easing, is not taken into account for some reason.
The amount of increased cost to us caused by QE is phenomenal, somewhere in the neighborhood of 30% since it started.