Next month, Social Security, one of the nation’s most successful and important government programs, turns 75. It is the cornerstone of retirement security for tens of millions of Americans.
(Today, the U.S. House Ways and Means subcommittee on Social Security will examine the success of Social Security 75 years after President Franklin Roosevelt signed it into law. We’ll be covering the hearing.)
Next November, when the federal budget deficit commission makes its report, large chunks of that cornerstone may be chipped away if the panel recommends cutting Social Security benefits and raising the retirement age rather than addressing the real causes of the nation’s growing debt. (Click here to read AFL-CIO President Richard Trumka’s recent testimony before the federal deficit commission.)
A new study by the Center for Economic and Policy Research (CEPR) finds that if the benefit cuts and retirement age increases that have been most prominently suggested were adopted, they would have a substantially negative impact on low- and middle-income families. Says CEPR co-director Dean Baker:
There is a great deal of talk in policy circles about cutting Social Security, but very little discussion of the financial situation of those affected by the cuts….All of these proposals will result in significant cuts in income for low- and/or middle-income families.
Social Security benefits are the largest source of retirement income for most retirees. For six in 10 seniors, Social Security represents more than half of their income. In addition, nearly one-half of elderly unmarried women and widows, and one-third of all beneficiaries, have little other than Social Security and rely on its monthly benefit for 90 percent or more of their retirement income.
The report, “The Impact of Social Security Cuts on Retiree Income,” examined the most common proposals for reducing benefits for near or current retirees. Those cuts are: changing the way benefit increases are calculated, by adopting what is known as progressive price indexing (PPI); raising the retirement age to 70 years old in 2036; and reducing the cost of living adjustment (COLA) to 1 percent below inflation.
According to the report:
- The PPI formula would reduce benefits by 6.2 percent for a middle-income household with wage earners who were between ages 45 and 49 in 2007 and 9.6 percent for those between 40 and 44 years in 2007.
- Raising the retirement to 70 years old in 2036 would cut benefits by 4 percent for workers between the ages of 50 and 54 in 2007 and by 10 percent for workers 40-44 years in 2007.
- Reducing the COLA would result in a benefit cut of 12 percent for a retiree at age 75 and more than 20 percent at age 85. For low-income retirees between ages 55 and 75 in 2007, reducing the COLA equals a 14.6 percent reduction in income at age 85 and a 16.5 percent cut for workers who were between 40 and 44 years old in 2007.
Cutting benefits for middle- and low-income workers is “likely to be especially painful” for those “who are now approaching retirement,” according to the report.