What if, in the future, the cost-of-living adjustments on your federal, military or Social Security retirement benefits were reduced a teensy bit each year. Every year. Maybe shaved less than half a percentage point each time. You would hardly notice it, right? After a while it would be the norm and you — like a slowly boiled lobster — wouldn’t notice.
All of the above is one reason so many groups — even federal unions that staunchly support (or supported) the president — are fighting the White House budget proposal to base future federal retirement benefit increases on the chained CPI index.
Critics of the current federal COLA system say that it overstates inflation. That means retirees whose annuities are linked to inflation get larger raises than they deserve or are needed to keep pace with inflation. Using the chained CPI yardstick, which they say is more accurate and realistic, would continue COLAs for retirees. But at a slightly lesser rate. Over time, the compounding effect of the reduced COLAs would produce dramatic savings to the federal and Social Security programs. It would also mean that five, 10 and 20 years down the road current and future retirees would be getting less, in some cases a lot less, than they would under the current Consumer Price Index measurement system. How much less?
Federal News Radio’s Jack Moorecrunched the numbers. Based on OPM data (showing the median federal civil service retirement benefit is $31,440 per year) retirees would miss out on about $1,500 after five years under the chained CPI, according to a “chained CPI calculator” put together by the National Active and Retired Federal Employees Association (NARFE). After 15 years, he said, the loss — money that the retirees did not receive — would amount to $14,788.
Name your poison: So, what would the chained CPI mean to you as an individual? You can crunch the numbers using the calculator here.
Your COLA and Your Turn
Because so many people want information on the chained CPI proposal, we’re going to rerun last week’s Your Turn radio show. Our guest was financial planner Arthur Stein, who has studied the potential impact of the change on retirees. He will also talk about the Thrift Savings Plan and how to get the most out of it.
Also joining us is Stephen Losey, senior writer for the Federal Times, who will talk about the budget, furloughs and what’s next for federal and postal workers.
Listen if you can (1500 AM or online), and if you have questions email them to me at firstname.lastname@example.org or call in during the show at (202) 465-3080. The show will be archived here.
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