Social Security Payment Increases - Debt Deal Casualty?

Baby Boomers -- that Social Security check you're looking forward to in your retirement years, may become the first casualty of the debt deal talks.

Congress, including the "Gang of Six" debt deal negotiators, is currently debating options that would recalculate or shift the consumer price index adjustment to a "chained CPI" -- a change that would save the U.S. Government $200 billion to $300 billion over the next 10 years, USAToday.com reported.

The chained CPI shifts goods every few years, to adjust for consumer preferences, and amount purchases, based on price. The thinking is that if the price of beef rises, consumers will start buying more chicken, and hence the changed CPI would then weight the chicken component of the index more, than beef.

Net result: Because a chained index more-accurately measures actual inflation, and would result in a smaller increase in the CPI, Social Security benefits would not rise as quick. Experts estimate that the chained CPI would rise by about 0.3 percentage points less per year than the current CPI.

The impact on total Social Security payments would be huge, of course, saving the U.S. Government hundreds of billions of dollars.

However, as one might sense, the nation's largest group representing retirees, the American Association of Retire Persons (AARP), does not like the proposed changed, which is being discussed by Gang of Six debt deal plan negotiators.

According to AARP, workers with average annual earnings of approximately $43,084 who retired at age 65 would get $256 less in annual Social Security benefits at age 70 under the chained CPI formula. At that age, the total amount of benefits collected would be $768 less. By the time the workers reached 85, they'd be getting $1,000 less in annual Social Security benefits and $10,592 less in accumulated benefits.

The AARP opposes the change, because it "breaks a promise made by many politicians to not cut the benefits of anyone over age 55," Nancy Altman, co-chair of the Strengthen Social Security Campaign, said in a statement.

Political/Public Policy Analysis: Historically, any attempt to change the Social Security payout to the detriment of recipients was considered the 'third-rail' of U.S. politics: touch it, and you were dead, politically.

But a push by small but vocal minority faction in the form of the Tea Party has been able to structure the debate in 2011 to the point that all government spending is vulnerable, including Social Security.

Hence, it looks like some adjustment to the CPI formula will be passed by Congress, probably within the negotiated debt deal package. That means adjustments to Social Security to compensate for inflation will not be as large - reducing the monthly benefit.