Even Social Security’s current inflation adjustment understates the true impact of inflation on the elderly. That’s because they spend 20 to 40 percent of their incomes on health care, and health-care costs have been rising faster than inflation. So why adopt a new inflation
adjustment that’s even stingier than the current one?
Social Security benefits are already meager for most recipients. The median income of Americans over 65 is less than $20,000 a year. Nearly
70 percent of them depend on Social Security for more than half of this.
The average Social Security benefit is less than $15,000 a year.
Besides, Social Security isn’t in serious trouble. The Social
Security trust fund is flush for at least two decades. If we want to
ensure it’s there beyond that, there’s an easy fix — just lift the
ceiling on income subject to Social Security taxes, which is now
Why are Democrats even suggesting the inflation adjustment be
reduced? Republicans aren’t asking for it. Not even Paul Ryan’s
draconian budget includes it.
Democrats invented Social Security and have been protecting it for
almost 80 years. They shouldn’t be leading the charge against it.
And the people at Strengthen Social Security,
Some policymakers are considering accepting a grand bargain that includes the chained CPI for Social Security. This is no minor technical change – it is a benefit cut that compounds to become very large over time. The chained CPI would cut the annual benefit of the average earner (someone making $43,518) by $658 at age 75, $1,147 at age 85, and $1,622 at age 95.1 The cumulative cut for that individual would be $4,631 – more than three months of benefits – by age 75; $13,910 – nearly a year of benefits – by age 85; and $28,004 – more than a year and a half of benefits – by age 95.2
Given the severity of the chained CPI benefit cut, many have proposed exempting segments of the beneficiary population from its impact. According to the Director of the National Economic Council, Gene Sperling:
“[A]ny agreement to make this change to the CPI must include a dedication of a portion of the savings to protections for low-income Americans, certain veterans, and older Social Security beneficiaries.”3
While exempting these groups sounds good, one discovers, upon closer examination, that the goal is unworkable in reality.
Groups the Administration Recommends Exempting
Poor beneficiaries. The Administration has recommended shielding from the chained CPI benefit cut the lowest-income seniors and people with disabilities, but it proposes shielding only the benefits they receive from the Supplemental Security Income (SSI) program. However, there are 2.8 million so-called dual eligibles – poor aged or disabled who receive modest Social Security benefits in addition to SSI. And there are at least 9.4 million poor or near-poor people who receive Social Security, but not SSI. Indeed, around one out of five Social Security beneficiaries is poor or near-poor.4 Exempting SSI does not shield these poor and near poor seniors and people with disabilities dependent on Social Security benefits.
Veterans. The Administration has suggested that veterans be shielded from the chained CPI benefit cut. Because of the number of programs that would be subject to the chained CPI, veterans could receive double, triple, or more hits from the chained CPI. Military and veterans benefits that are indexed in the same manner as Social Security include Military Retirement pensions, for which many veterans are eligible; Veterans Pension benefits; Veterans Disability Compensation; and Dependency and Indemnity Compensation.5 But most of those receiving these benefits are also receiving Social Security and indeed other benefits not limited to veterans but vitally important to them. All of these other benefits would be cut by the chained CPI. About 9.3 million veterans received Social Security benefits in 2009 – just over one in five Social Security beneficiaries.6 It is not surprising that numerous groups representing veterans, including the American Legion and the Veterans of Foreign Wars, oppose the chained CPI – not just for narrowly-defined veterans programs, but also for Social Security and other programs crucially important to those who have served our nation in uniform.
The oldest old. The third group the Administration has explicitly discussed shielding from the chained CPI cut is “older Social Security beneficiaries.” Those 85 and over numbered 5.8 million in 2010, are projected to increase to 7.6 million in 2030, and to 19 million in 2050.7 Some have proposed a so-called “20th-year birthday bump,”8 which, to compensate for 20 years of receipt of a lower cost of living adjustment (COLA), would provide a small increase in benefits9 from age 82 to 86.10 As other fact sheets reveal in detail,11 those over age 85, who are primarily women, would not be made whole by proposed birthday bumps; rather, they would have to get by, even with the birthday bump, on greatly reduced incomes as they age. For those who live to age 95, for example, even with the birthday bump the chained CPI would cut their benefits cumulatively by a total of $16,663, and in their 95th year, by over 9 percent, or around $1,600, on average.12
Savings Lost from Exempting These Groups
Most Americans who receive Social Security live on modest means. Half of elderly Americans live on less than $19,939/year and have Social Security benefits of less than $13,376/year.13 Of the $725 billion in total benefits paid in 2011,14 Social Security paid:
- $58.3 billion to people who are poor or near-poor (excluding those aged 85 and older);15
- $131 billion to those who are aged 85 or above (including veterans);16 and
- $176.4 billion to veterans and their families17 (net of the above two groups).18
Together, this amounts to $356.8 billion, or 50.5% of total benefits. In other words, if Congress truly wanted to protect these groups, it would in essence have to use the current COLA for half of Social Security’s beneficiaries and the chained CPI for the other – and the groups are not static. People’s overall income shifts from month to month; married couples who are different ages could have one partner subject to one COLA, the other subject to another. These are only some of the complexities which would result from efforts to shield vulnerable groups and veterans.
Others Who Should be Exempted
People with long-term disabilities. The circle of economically vulnerable Social Security beneficiaries extends well beyond the above groups. The Disability Insurance component of Social Security is a lifeline to 8.6 million Americans with disabilities and their 2 million dependents.19 Those who are disabled at a young age could be subject to the chained CPI cut for 30, 40 years or more. The effect of the COLA cut compounds over time, so people with disabilities would see a
much larger benefit cut from the change in the COLA than any other group of beneficiaries. The so-called birthday bump could be applied to them, but, as discussed above, the proposed bump up is inadequate and insufficient – and, of course, does nothing at all for those in their 19th year or earlier of benefit receipt.
People currently 55 and over. Many in Congress have pledged to shield all Americans aged 55 and over from Social Security cuts; this principle was repeated most recently in the FY 2014 Budget Resolution introduced in the House by Rep. Paul Ryan.20 If Congress were to honor this principle, any change to the Social Security COLA would have to be delayed until today’s 54 year olds reached retirement age, and then the change would have to be phased in. Keeping this pledge would forgo virtually all of the projected Social Security savings from the chained CPI over the coming decade, which is the focus of today’s budget negotiations.
The idea of adopting the chained CPI for Social Security as part of deficit reduction efforts is bad policy because the program does not contribute to the deficit, because the claim that the current COLA overestimates inflation experienced by seniors and people with disabilities is not empirically justified, because Social Security benefits are modest by virtually any measure, and because the nation is facing a retirement income crisis and cutting Social Security will make that crisis worse.21 Exempting the poor and near-poor, veterans, and the oldest-old sounds good but is unworkable. Even if it could be done, it would require foregoing most of the savings generated from Social Security by the chained CPI. Perhaps most important, the vast majority of beneficiaries – far more than the circle of the poor and near-poor, oldest old, and veterans – lives on modest means, and cannot easily absorb such a large cut to their benefits. In short, the notion that one could humanely implement the chained CPI cut by carving out certain needy and worthy groups – and still achieve considerable budget savings – is false.
Based on analysis by Social Security Works, “Social Security COLA Cut: a Benefit Cut Affecting Everyone,” February 2013. http://strengthensocialsecurity.org/sites/default/files/Chained_CPI_Fact_Sheet_FINAL_Feb-2013_0.pdf Percent benefit reduction under chained CPI from SSA Chief Actuary, “Effects on Social Security Financial Status and on Benefit
Levels of Two Potential Modifications to the Automatic Annual Cost of Living Adjustment Requested by Representative Xavier Becerra,” June 21, 2011. http://ssa.gov/oact/solvency/XBecerra_20110621.pdf Projected wage-indexed benefits for a worker with average earnings claiming benefits at age 65 from SSA, Table 2.A26, “Monthly benefit
amount for selected beneficiary families with first eligibility in 2011, by average indexed monthly earnings for stipulated yearly wage levels, effective December 2011 (in dollars),” Annual Statistical Supplement, 2012, 2012. http://www.ssa.gov/policy/docs/statcomps/supplement/2012/2a20-2a28.html#table2.a26
Social Security Works, Ibid.
Reddit “Ask Me Anything” with Gene Sperling, Director of the National Economic Council and Assistant to President Obama for Economic Policy, March 13, 2013.
There are 2,780,000 people who receive both Social Security and Supplemental Security Income (SSI). Meanwhile, 12.2 million (12,188,042) Social Security beneficiaries have incomes below 125% of the poverty line, which for single households is $14,628 for individuals under age 65 and $13,485 for individuals aged 65 or older—over 1 out of 5 (22
percent) total Social Security beneficiaries. These figures include people aged 85 or older and people on Supplemental Security Income. Since the 2,780,000 dual-eligible individuals must have incomes at or below the poverty level, they are included among the 12,188,042 Social Security beneficiaries with incomes under 125% of poverty. Thus the number of Social Security beneficiaries with incomes under 125% of poverty who are not on SSI is 9,436,005. SSA, Table 1, “Monthly Statistical Snapshot, January 2013,” February 2013.
http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/ US Census Bureau, Current Population Survey, “POV27. Source of Income by Ratio of Poverty Thresholds for Families and Unrelated Individuals,” 2012 Current Population Survey Annual Social and Economic Supplement, March 2012.
For a more detailed discussion, see Alison Shelton, “Inflation Indexation in Major Federal Benefit Programs: Impact of the Chained CPI,” AARP Public Policy Institute, March 2013.
SSA, Anya Olsen and Samantha O’Leary, “Military Veterans and Social Security: 2010 Update,” Social Security Bulletin Vol. 71, No. 2, May 2011.
Grayson K. Vincent and Victoria A. Velkoff, “The Next Four Decades. The Older Population in the United States: 2010 to 2050,” Current Population Reports, U.S. Census Bureau, May 2010.
Erskine Bowles and Alan Simpson, co-chairs of the President’s 2010 Fiscal Commission, proposed a 20th-year bump, as did the Domenici-Rivlin Debt Reduction Task Force. The latter applies it only to retirement benefits.
The 20th-year bump-up would increase benefits by 1% of the benefit of a worker with average lifetime earnings, each year for 5 years, starting after 20 years of eligibility (age 82 for retirees).
For disabled workers, the 20th-year bump up would kick in 20 years after initial determination of disability.
Joan Entmacher and Katherine Gallagher Robbins, “Chained CPI Imposes Painful Social Security Benefit Cuts and a Benefit Bump-Up Provides Only Limited Relief,” National Women’s Law Center, December 2012.
http://www.nwlc.org/sites/default/files/pdfs/chainedcpibirthdaybumpup.pdf; and Social Security Works, “The Chained CPI is a Bad Idea – Even with a 20th-Year Benefit ‘Bump Up’,” forthcoming.
The chained CPI would cut benefits of the average worker retiring at 65 by $28,004 by age 95; the 20th-year birthday bump would provide a benefit bump-up of $11,341 over 5 years (age 82-86). The net cut: $16,663.
March 2012 Current Population Survey, PINC-08.
SSA, “Estimated total annual benefits paid, by state or other area and program, 2011 (in millions of dollars),” Annual Statistical Supplement, 2012, 2012, Table 5J1.
Figure reflects combination of Social Security income for people with incomes under 125% of the poverty threshold including unrelated individuals under age 65, individuals in families under age 65, unrelated individuals aged 65 or older, and individuals in families aged 65 or older. (Poverty thresholds in 2011 were as follows: for one-person households $10,788 for age 65 and over, $11,702 for those under 65; for two-person households: $13,609 for age 65 and over, $15,139 for those under 65.) An estimate of those benefits that went to people aged 85 or older with incomes under 125% of poverty was then subtracted from the total. US Census Bureau, Current Population Survey, “POV27. Source of Income by Ratio of Poverty Thresholds for Families and Unrelated Individuals,” 2012 Current Population Survey Annual Social and Economic Supplement, March 2012.
For purposes of analysis, it was assumed all people aged 85 or older with incomes under 125% of poverty receive Social Security. Social Security benefits were calculated by multiplying total benefits for people aged 65 or older by the percentage people aged 85 or older represent of people 65 or older. U.S. Census Bureau, Current Population Survey, “POV01. Age and Sex of All People, Family Members and Unrelated Individuals Iterated by Income-to-Poverty Ratio and Race,” 2012 Current Population Survey Annual Social and Economic Supplement, March 2012.
Calculated by multiplying number of veterans by one-and-a-half times the average veteran’s benefit, in order to account for the benefits received by veterans’ family members. Thirty-five percent of Social Security beneficiaries are veterans or their family members. Estimates of benefits received by veterans with incomes under 125% of poverty and aged 85 or older were subtracted from the total figure. SSA, Anya Olsen and Samantha O’Leary, “Military Veterans and Social Security: 2010 Update,” Social Security Bulletin Vol. 71, No. 2, May 2011.
Benefits for people with severe disabilities are a significant part of benefits in every category examined. After people with severe disabilities reach the full retirement age – currently 66 – they no longer receive benefits from the Disability Insurance trust fund. As a result, benefits to, for example, people aged 85 or older, may go to people with
disabilities, but they are not technically disability benefits.
SSA, “Disabled Workers and Dependents: Average Monthly Benefit, by Type of Benefit, Sex, and Age, December 1957-2011, Selected Years,” Annual Statistical Supplement, 2012, 2012: Table 5.E2.
“Concurrent Resolution establishing the budget for the United States Government for fiscal year 2014 and setting forth appropriate budgetary levels for fiscal years 2015 through 2023,” submitted March 11, 2013.
Economic Policy Institute, No empirical basis for reducing Social Security COLA, November 20, 2012.