Under growing pressure to reduce the federal deficit, the prospect of major Social Security and Medicare cuts is the greatest it’s been in almost three decades. The recent debt limit deal calls for a bipartisan committee that has until Thanksgiving to come up with a plan to cut the deficit by $1.2 trillion. TSCL believes that the committee would very likely include a change to a more slowly growing consumer price index (CPI) that would cut annual-cost-of-living adjustments (COLAs). There are also proposals that would require seniors to pay a bigger portion of their Medicare costs.
During the debt limit negotiations, one of the most frequently discussed components of deficit reduction plans included a switch to the “chained” CPI. Such a proposal wouldn’t just impact Social Security benefits; it would also reduce Railroad Retirement benefits, military retirement, and federal pension payouts as well as Supplemental Security Income (SSI) payments received by very low-income seniors. In addition, seniors would also pay more in taxes since the CPI is also used to adjust tax brackets, the standard deduction, and personal exemptions.
Advisor editor Mary Johnson estimates that using the chained CPI would cut lifetime Social Security benefits by about 7% over 25 years. New retirees with an average benefit of $1,100 in 2010 would receive about $18,634 less over a 25-year retirement period. “The financial impact is deceptive, appearing small at first,” says TSCL Executive Director, Shannon Benton, “But the cuts compound over time, growing deepest when seniors are the oldest and sickest. By the time seniors are in their late 80’s or 90’s, when they are most likely to have chronic health problems, monthly benefits would be about $145 lower using the chained CPI.”
TSCL is adamantly opposed to using COLA cuts to reduce the federal budget deficit. “With thousands of dollars in Social Security and Medicare benefits at stake, we urge everyone who cares about their Social Security and Medicare benefits to contact their lawmakers in Congress NOW,” Benton says.
What you can do: Send a letter, email or fax to your Senators and Representative.