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Cut Social Security COLAs?

By Jennie L. Phipps · Bankrate.com
Thursday, June 30, 2011
Posted: 2 pm ET

As Congress struggles with ways to reduce the federal deficit, one of the approaches that appears to be among the most likely to be adopted is a revision in the way the Consumer Price Index is calculated.

The CPI measures how much the cost of the things people buy is affected by inflation. The chained CPI, which the Bureau of Labor Statistics has calculated in addition to the classic CPI over the last few years, takes into account the lifestyle changes we make when the price of something rises. For instance, if the cost of oranges goes up, a lot of us switch to buying something cheaper, like apples. The chained CPI acknowledges that and factors it into the calculation, producing a lower cost-of-living adjustment, or COLA.

The classic CPI is used to measure the cost-of-living adjustments for Social Security recipients. If Social Security is required to adopt the chained CPI instead, cost-of-living increases to Social Security will be lower, a factor for anyone doing retirement planning.

The Senior Citizens League, a nonpartisan advocacy group, is among those already lobbying against this proposal. The Senior Citizens League contends that the chained CPI doesn't take into account costs that affect people living in retirement. For instance, when the cost of medicine goes up, most older people can't switch to a cheaper brand. It just doesn't work that way.

Switching to the chained CPI would reduce Social Security COLAs by about 0.3 of a percentage point each year, the Congressional Budget Office estimates, saving the federal government more than $200 billion over the next 10 years. Most of the savings would come from lower Social Security benefits and lower retirement benefits for federal employees, whose increases also are tied to the CPI

The Senior Citizens League calculates that such a change would reduce Social Security benefits by an estimated 7 percent over a 25-year retirement. For a senior who retires in 2011 and receives the average Social Security benefit -- about $1,100 per month -- this would reduce benefits over 25 years by $18,634. The cuts would be very small in the beginning but escalate as recipients age.

Supporters of the "chained" CPI plan propose it also would increase the Social Security minimum benefit so the poorest Social Security recipients wouldn't be as affected. Nevertheless, it's clear that people who are living on nothing besides Social Security -- about 25 percent of recipients -- would feel the pinch.

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19 Comments
ralk
August 16, 2011 at 4:14 pm

How about congress be removed altogether and get real GOP leaders to do the job.

ralk
August 16, 2011 at 4:13 pm

How about congress be removed altogether and getral GOP leaders to do the job.

Richard
August 15, 2011 at 10:12 pm

Why don't the politicians stop giving themselves raises for about 10 years. After all they are suppose to look out for the people. They have their own health programs, retirement plans and are reimbursed for their expenses. Originally the forefathers of the US governed without pay, they held down jobs outside of the political arena. Maybe it is time those so called leaders should think outside the box and live like everyone else.

Tom H
August 15, 2011 at 9:02 pm

Maybe we should collect SS contributions for all earned income. This will increase contributione, without hurting those who need the COLA

Sharon
August 15, 2011 at 7:28 pm

S.S. would be just fine if our government didn't borrow
from it and then started putting it into the general
fund. It was not meant for all the other entitlements
that our government seems to think everyone needs.

Luther Epting
August 15, 2011 at 6:51 pm

Why do members of congress still get a COLA when Social Security recipients get none? I asked my congressmen and got a response that they "...really supported the Nave Seals being found innocent of slapping around terrorists".

Harlon Katz
August 15, 2011 at 6:16 pm

@End the Ponzi Scheme - So true. Plus the argument that people make that they are "owed" because they put in doesn't hold water when you realize they are going to take out MUCH MORE than they put in. The system was designed to keep retirees out of poverty for a few years until they DIED, not a two decade lifestyle after retirement. The retirement age has already been raised, but they kicked it down the road to my generation. It is time that some of the CURRENT retirees feel some of the pain that they helped to inflict with their voting patterns. Eventually the other peoples' money runs out for all the feel-good give-aways.

P B
August 15, 2011 at 6:05 pm

I am on disability and what I get doesn't even cover my mortgage payment. I agree with ST this odumbo hasn't looked out the windows lately, people are loosing their homes everyday and our medicare keeps going up{thanks to AARP} and the meds go up, gas has gone up, food has gone up but we don't get a COLA because they say there was no increase, well why did the congress and the senate get a COLA last year and this year as well. What things only went up for them and nobody else. I think we need to put a lawsuit in against Odumbo, Congress and the Senate for discrimination against the seniors in this country and restore the cola back to when this moron took office.