September 2011, Week 4


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Sat, 24 Sep 2011 10:54:04 -0400
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The Effects of Cutting Social Security COLAs on the
Living Standards of the Elderly

Center for Economic and Policy Research
September 20, 2011


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.

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


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