Originally published June 16 2005
Confusion rampant about Social Security's Cost of Living Adjustment (COLA) index
by Mike Adams, the Health Ranger, NaturalNews Editor
SFGate.com spells out Bush's plan for decreasing Social Security to high- and middle-income retirees by changing the way COLA is done on benefits.
Their very different proposals are causing confusion for many people.
Among them is reader Barry S., who says, "I was under the impression that the current changes to the monthly Social Security checks are based on a wage increase index and that some proposed reform plans would switch that calculation to a cost-based index.
But I keep reading that the current changes to recipients' checks are based on the CPI index, which I understand is based on changes in prices.
The key to understanding this complex issue is to separate initial benefits (how much you get in your first year of retirement) from subsequent benefits (how much you get in the following years.) They are indexed differently.
After you retire, your monthly benefit will be adjusted each year by the change in the consumer price index, calculated by the Bureau of Labor Statistics.
This is commonly known as the cost of living adjustment, or COLA.
Instead of using wage inflation, it would use a combination of wage and price inflation for most people, which would result in reduced benefits for all but the lowest 30 percent of wage earners.
Bush's plan would not change the way post-retirement benefits or COLAs are calculated.
Under the current formula, the Social Security Administration first looks at a worker's annual lifetime earnings through age 60.
Under Bush's plan, this formula would not change for people whose incomes are in the lowest 30th percentile, a group currently earning about $23,000 a year or less, says Steve Goss, the Social Security Administration's chief actuary.
For everyone else, the plan would change the way past earnings are indexed for inflation.
In 2002, the Bureau of Labor Statistics started publishing a new index called the chained-CPI, designed to reflect the substitutions that consumers make across item categories in response to relative price changes.
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