The Effects of Cutting Social Security COLAs on the Living
Standards of the Elderly

Center for Economic and Policy Research 
September 20, 2011

http://sz0034.ev.mail.comcast.net/zimbra/h/search?su=1&si=9&so=0&sc=307968&st=conversation&xim=1&action=view&cid=-1892141

Washington, D.C.- On both the campaign trail and Capitol
Hill, politicians have recently suggested changing the
indexation formula for Social Security benefits. A new report
from the Center for Economic and

Policy Research (CEPR) suggests that such a change would
significantly reduce the living standard of retirees. The
report also points out that Social Security benefits relative
to lifetime earnings have already been cut for those retiring
this year or in the near future.

"The data indicate that a change in the inflation formula
would reduce the living standards of current and future
retirees who are already getting less back in benefits and
paying more into the system than

earlier retirees," said Dean Baker, an author of the report
and a co-director of CEPR.

The report, "The Impact of Cutting Social Security Cost of
Living Adjustments on the Living Standards of the

Elderly," examines the effect of using the chained consumer
price index or C-CPI-U as the basis for measuring inflation
to calculate cost of living adjustments for Social Security
benefits. For Social Security beneficiaries, these changes
would mean a

decrease in benefits of 3 percent in 10 years, 6 percent in
20 years and 9 percent after 30 years of retirement. To
assess the effect of these changes on the standard of living
of seniors, the authors look at

changes to the CPI in the mid and late 1990s and how workers
responded to the changes.

The report shows that these changes to the CPI meant that 10
years after these changes went into effect, retirees were
receiving a benefit 5 to 7 percent lower

than would have been the case without any changes. However,
the authors show that the Social Security as a share of total
income per retiree actually increased in recent years even
though the size of the benefit

relative to lifetime earnings did not. And in considering the
planned rise in the retirement age to 67, the report
indicates an even deeper cut in benefits for future retirees.
In addition, these near-retirees

have paid a higher share of their income as Social Security
taxes than previous retirees.

Since benefits have already been cut, and taxes have already
been raised for those nearing retirement, Congress should be
very cautious in making further

cuts. While some have characterized a changing of the
inflation formula for benefits as a "painless" way to
generate budget savings, the potential loss in benefits would
actually be a substantial portion of most retirees' income.

[Report:
http://www.cepr.net/index.php/publications/reports/impact-of-cutting-ss-cola-on-living-standards-of-elderly ]

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