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URL:  http://boards.fool.com/this-whitehouse-memo-describes-how-the-first-two-21986145.aspx

Subject:  Re: Enron and Social Security Date:  1/29/2005  1:03 PM
Author:  mcain6925 Number:  44302 of 75627

This Whitehouse memo describes how the first two options are unRepublican, but leaves open the possibility of the third by adjusting the level of benefits to not track inflation.

It is important to recall that there are two different indexings that occur in SS. One is that the initial benefit level is indexed to increases in wages, which over the last 70 years, have substantially outstripped the rate of inflation. The second is that after your initial benefit has been set at retirement, the benefit is indexed to inflation in subsequent years. The second index is intended to keep inflation from reducing your standard of living after retirement; the first index is intended to mirror the increasing standard of living over your working career.

The administration appears to favor plans that tie indexing of the initial benefit to inflation, rather than to wage growth. In effect, for today's 25-year-old, this implies that their SS benefit in 40 years will be based on today's standard of living, not the standard of living they will have had near the end of their career. Suppose SS benefits had worked that way all along, so someone retiring today would have their benefit based on the standard of living in 1965. I remember 1965 -- residential air conditioning was limited to the extremely wealthy, 25% of households could not afford a car even if they wanted one, most households had one TV but no more, the term "jet set" reflected who could afford air travel, fresh fruits and vegetables in the winter were mostly just not available, CAT scans and MRIs didn't exist, houses were much smaller, etc.

Put another way, inflation measures the difference in the price of a standard "basket of goods" between this year and last year. Inflation does not include any measure of the fact that the standard basket contains far more goods this year than it did ten years ago.
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