By Mike Watson, TSCL Legislative Assistant
The Senior Citizens League (TSCL) often hears from seniors who, in their advanced age, have drawn down all of their assets and are relying solely on Social Security as their only source of income. Currently, those older than age 80 are at a greater risk of poverty than younger seniors aged 65-69. In 2008, nearly 20% of the population over the age of 80 was classified as “poor” or “near poor,” compared to 11.9% of the population aged 65 to 69.
The older many people get, the more at risk they are of exhausting their personal savings and other assets—causing them to rely much more on Social Security. This is exacerbated when, currently, Social Security’s cost-of-living-adjustments (COLAs) are not based on the spending patterns of seniors, leaving many older seniors unable to keep up with rising costs.
One senior-friendly provision in most Social Security reform plans, including that of the President’s “fiscal commission,” is an “old-age benefit boost” for the oldest seniors. Phrases such as this sound nice on the surface, but exactly how would this provision work, and interact with other proposed changes?
The “old-age benefit boost” included in the “Fiscal Commission’s” plan would increase benefits by one percent each year after a beneficiary has been eligible for Social Security for 20 years, through the 25th year. Generally, seniors would see their benefits increased about a total of five percent from the age of 82 to 87. Specifically, benefits would be increased by one percent of the benefit amount of a worker who was born in the same year and earned average wages their entire life. This would especially benefit lower-income seniors, who earn less than average wages.
While provisions similar to this would be welcome relief for many seniors, it’s important to consider how this would work in the context of other changes proposed by the “fiscal commission,” and others. For example, many have proposed reducing COLAs by using the so-called “chained” consumer price index (CPI) to calculate COLAs. The “chained” CPI would cause COLAs to grow about .3 percentage points slower each year. TSCL estimates that over a 25-year retirement this change would reduce the benefits of a senior who retires in 2011 with average benefits by over $18,000.
In this context, TSCL studied how these two provisions would interact. For that same senior, if the “old-age benefit boost” proposal were in effect with a “chained” COLA, after a 25 - year retirement the “old-age benefit boost” helps make the Social Security benefit roughly equal to the benefit the senior would receive under current law. However, due to the COLA cuts a senior would still lose about $12,000 over his or her 25 year retirement. As Social Security reform may be considered, TSCL will urge members of Congress to consider the interactions and implications of any changes.