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Obama's Social Security Proposal Will Not Materially Impact Most Seniors

President Obama made some big waves with both Republicans and Democrats with his budget proposal. One of the big points of contention is his plan to limit the growth of Social Security. His plan is to change the method by which Social Security is indexed for inflation, by changing from the CPI (Consumer Price Index) to the Chained CPI. This small change is expected to slow the benefit growth rate and save the government approximately $130 billion over the next 10 years. Here is a look at the last 14 years of the two methods of calculating inflation (CPI is blue, Chained CPI is red):

(click to enlarge)Click to enlarge

By the tone from groups like AARP you would think that benefit payments are going to get cut in half and seniors will be left out of the street. Just a quick back of the envelope calculation shows that a 65 year old retiring in 1999, receiving $1,000 in monthly Social Security benefits would be receiving approximately $1,379 today (using current CPI crediting). If a Chained CPI was used, that same retiree would be receiving $1,332 per month. A $47 difference is real, but it is not the devastating impact that many groups would have you believe.