Alexandria, VA A leading Social Security reform
option to cut the annual cost-of-living adjustment (COLA) is no
"small tweak" and would cost unsuspecting retirees tens of
thousands of dollars in Social Security benefits. "Cutting the
COLA by 1 percent, a half a percentage point, or even as little as
three tenths of a percentage point may sound like a ‘small tweak’
but even the tiniest COLA cut can add up to a big cut in retirement
income," says Daniel O’Connell, Chairman of The Senior
Citizens League (TSCL). "COLAs, like interest, compound over
time, and reductions in the COLA mean the cuts grow bigger with
every passing year," he says.
Cutting COLAs by 1 percent would cost
beneficiaries with average monthly benefits of $1,067 in 2010,
$54,954 over a 25-year retirement according to a new analysis by
TSCL, one of the nation’s largest nonpartisan seniors groups. The
proposal to reduce COLAs was released as one of a menu of Social
Security changes in a bipartisan report by the Senate Special
Committee on Aging in May. Cutting the COLA is frequently cited as a
leading reform option because it would reduce such a large portion
of the deficit. The Senate Aging Committee report is expected to
serve as a menu of options for President Obama’s Commission on
Fiscal Responsibility and Reform, which will develop a proposal to
slash the federal budget deficit.
TSCL’s study examined the Senate Aging
Committee report’s three options to cut the growth of COLAs: by
one percent, 0.5 percentage point, or to use the "chained"
Consumer Price Index to determine the COLA, which is estimated to
cut COLAs by 0.3 percentage point. The study projected what retirees
would receive under current law and then compared that to what they
would receive under each of the proposed reductions over a 10-, 20-
and 25-year retirement period. The chart below illustrates how much
less retirees with average benefits would receive.
COLA Cut Proposals — No Small Tweak
Length of Retirement One Percent Cut One-Half
Percent Cut Chained COLA
25 years - $54,954 - $28,555 - $17,402
20 years - $32,023 - $16,565 - $10,060
10 years - $8,085 - $4,103 - $2,477
"While TSCL believes Social Security needs
to be put on more solid financial ground, Congress has other ways to
achieve this than cutting the COLA," O’Connell says.
"Social Security benefits already grow more slowly than senior
costs and become increasingly inadequate over time," he adds.
A recent analysis by TSCL found that seniors have
lost 24 percent of their buying power since 2000. The majority of
the 37 million Americans aged 65 and over, who receive Social
Security, depend on it for at least 50 percent of their income. To
help increase buying power, TSCL is lobbying for a change in the
Consumer Price Index (CPI) used to determine the COLA. The
government currently calculates the COLA based on the CPI for Urban
Wage Earners and Clerical Workers (CPI-W), a slow-rising index that
tracks the spending habits of younger workers who don’t spend as
much of their incomes on health expenditures.
However, the government also tracks the spending
patterns of older Americans, and has done so since 1983 with the CPI
for Elderly Consumers, or CPI-E. TSCL lobbies for legislation that
would provide a more adequate COLA by using the CPI-E, or a
seniors-only index like it, to calculate the annual increase. For
example, a senior who retired with a benefit of $460 in 1984 would
have received $12,856 more over the past 27 years had the CPI-E been
used to determine the COLA. To learn more and to sign a COLA protest
petition, visit www.SeniorsLeague.org.
With over 1 million supporters, The Senior
Citizens League is one of the nation’s largest nonpartisan seniors
groups. Located just outside Washington, D.C., its mission is to
promote and assist members and supporters, to educate and alert
senior citizens about their rights and freedoms as U.S. Citizens,
and to protect and defend the benefits senior citizens have earned
and paid for. The Senior Citizens League is a proud affiliate of The
Retired Enlisted Association. Please visit www.SeniorsLeague.org or
call 1-800-333-8725 for more information.
