CHAINED

A friend gave me a letter they received from AARP and asked me for an opinion. Those of you who received the same letter may be just as confused as I was when I read it.  

The word CHAINED threw me; I didn’t have a clue what it meant. So, I decided to do some research and want to share with you the real meaning of what the government describes as CHAINED.

Your social security check is now based on the cost of living (COLA), and the COLA is based on the consumer price index (CPI).  When the COLA goes up, so does your social security check.  Under CPI, let us say the price of butter is $2.00. Well, now the honchos in Washington are saying, if the cost of butter is $2.00, the seniors are not going to buy butter they are going to buy margarine instead for $1.00. The government is going to ASSUME they are going to buy margarine, which will lower the CPI which in turn lowers COLA which in turn lowers your Social Security check. This is the first part of what CHAINED means. (It also means you are being chained to a lower standard of living for the rest of your retirement years).

Part two:

We have established that under the government’s proposal, we will be getting a smaller Social Security check, but what does the word CHAINED have to do with that?

Here’s the catch:

Think of the $1,000.00 as your social security check and the Interest as the cost of living.

Let us say you put $1,000.00 into a saving account at 5% interest compounded yearly. At the end of the first year you will have $1,050.00. The second year you will have $1102.50 and at the end of ten years you will have $1,628.89.

Now, Let us revise the numbers to reflect the government’s new COLA proposal (Remember Margarine instead of butter)

You will now put $1,000.00 into a savings account at 4% interest compounded yearly.

At the end of the first year you will now have $1,040.00, the second year $1081.00 and at the end of ten years $1,480.24. As you can see each year, your check will be progressively lower because the interest (COLA) was initially lowered. Like a chain, each year’s COLA is linked to the previous year. Therefore, the word CHAINED. 

Olga Wolkenstein