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Measurements Matter: Calculate Social Security Using the Right Tools

Full-length image of baseball pitcher Bob Feller of the Cleveland Indians winding up for a pitch during practice, Editor's Letter AARP Bulletin May 2013

New York Times Co./Getty Images

Bob Feller's fastball was measured by comparing it to a motorcycle's speed. A truly accurate assessment would have required a radar gun. The right equipment needs to be used to calculate the Social Security cost-of-living adjustment, too.

To measure the speed of Bob Feller's fastball, the motorcycle had a 10-foot head start.

Learn about the future of Medicare and Social Security

Racing along Chicago's Lincoln Park in 1940, the Chicago police officer and his Harley-Davidson passed Feller at 86 miles per hour as the Cleveland Indians fireballer began his windup.

Then the race was on to see whether the pitch or the motorcycle reached home plate first. The ball won by 3 feet, and the assembled clockers calculated that Feller's fastball traveled between 98.6 and 104 mph. Fast-forward to the 21st century, when baseball scouts and even Little League dads use radar guns.

There's a message here: Measurement matters. So be sure to use the right equipment for your calculations.

Take the budget debate. To trim the budget deficit, the president and his fiscal warriors are targeting an array of federal benefits, including Social Security, by linking annual cost-of-living adjustments to a formula called the chained consumer price index.

The current consumer price index tracks the cost of a market basket of goods and services typically purchased by American households, while the chained CPI captures cost-saving decisions people make as prices increase — for instance, buying used cars instead of new, or chicken instead of beef.

Here's the problem: The chained CPI calculation is based on the total population and does not reflect spending changes as people get older.

Of the nearly 58 million Americans getting Social Security benefits, 70 percent are retired and at a point in their lives when health care and housing take a larger share of the household budget and education takes less. As it happens, the U.S. Bureau of Labor Statistics has been testing an alternative index that reflects these changes.

If it had been in effect, the "CPI for the elderly" would have increased the cost-of-living adjustment (COLA) today, and would raise it even more tomorrow. The president's budget proposal pegs the Social Security COLA to the chained CPI. By this calculation, the average benefit would be 2.9 percent lower than it would be under current law after 10 years, and 8.4 percent lower after 30 years. The same accumulated benefit pegged to the CPI for the elderly would be $4,052 higher than with the chained CPI after 10 years, and $34,047 higher after 30 years, according to AARP's Public Policy Institute.

Here's the big picture: The objective is to make the Social Security system secure and independent. Clearly, Social Security's finances need fixing and should not get entangled in the budget deficit debate. There are plenty of ways to do this. The quickest is to eliminate the income cap on payroll taxes, currently set at $113,700. Another way is to raise the payroll tax rate or the eligibility age.

But addressing the challenges of securing our nation's finances as well as Social Security requires not just a balanced approach but also measuring tools that are logical and accurate. It's the 21st century, after all. Don't measure the cost of living with a motorcycle when you should be using a radar gun.

Jim Toedtman is the editor of the AARP Bulletin.

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