What Does Price Indexing Mean for Social Security Benefits?

[REACTIVATED IN CT]

What Does Price Indexing Mean for Social Security Benefits? (PDF)
Excerpt: "A potential component of the administration's Social Security proposal is to shift from 'wage indexing' of benefits to 'price indexing' ... This discusses the reasons for keeping benefits up-to-date with either prices or wages. Then it describes the mechanics of both wage and price indexing, and the impact of shifting from wages to prices. Finally, it explores the implications of price indexing in terms of ... periodic adjustments or increased reliance on welfare programs." (Center for Retirement Research at Boston College)

http://www.bc.edu/centers/crr/facts/jtf_14.pdf

[papau]

1. Price Indexing means Standard of living is frozen in time

Price Indexing from 1930 to now would be enough to pay for the outdoor toilet, radio but no TV, bulk food but not prepared, and no transportation.

You would continue as you were in 1930 - but the improvements in life would be denied you.

Or if you want it in numbers - over the next 50 years the Soc Sec benefit under price indexing would be 50% lower than it would be under wage indexing.

I's call that a cut.

[AirAmFan]

2. That's what's proposed for the remianing defined benefit portion

of Social Security, that would co-exist with
"privatization" until default on the Trust Fund
scares everyone into 100 percent private accounts.

A more significant issue is the private sector annuities into
which the vast majority of privatized accumulations would go
at retirement.  Will they be indexed for inflation, and how? 
Even price indexation would make the single premium so high
that a very high proportion of retirees would be plunged into
poverty immediately.

Without any inflation escalator, the purchasing power of a
fixed nominal monthly annuity payment would be subject to the
RULE OF 72:

12 percent inflation for 6 years cuts the purchasing power in
half.  So does
9. . . . . . . . . . . . . . . . 8, or
6 . . . . . . . . . . . . . . . 12, or
4 . . . . . . . . . . . . . . . 18, or
x . . . . . . . . . . . . . . . 72/x years.

What if average life expectancy rises to 100, and Dubya's $5
trillion spending spree (so far) ignites 18 percent inflation
again? Tens of millions of retirees would not even be able to
afford catfood.