A new battle is looming in the COLA wars. The final report of the President’s Commission on Social Security is expected to recommend benefit cuts that include reducing Cost-of-Living Adjustments (COLAs). In an April speech Commission Co-chairman Daniel Patrick Moynihan, the former Democratic Senator from New York, said that "An eight tenths of a percentage point reduction in the COLA would do it nicely."

According to the American Academy of Actuaries, reducing COLAs by just one half a percentage point would solve an estimated 37% of Social Security’s long-term financing problems--presumably eight tenths would solve even more. Eight tenths of a percent may not sound like much, but an on-going study for TSCL has found that such a reduction would cost a retiree with average benefits in 2000 more than $5,000 over the next ten years.

Notch Babies already receive lower COLAs. Because seniors born from 1917 through 1926 receive lower benefits than other retirees with comparable work and earnings records, their annual COLA increases are also correspondingly lower in terms of real dollars. For example, although you received a 3.5% COLA increase in January 2001, if your benefit was $850 instead of $1000, then your annual increase was only $29.80 (rounded to the nearest 10 cents) instead of $35. A new study for TSCL estimates that a person who retired with average earnings at age 65 in 1984 may have received on average $42 per year less in COLA increases over the past 17 years.

COLA reductions are not the only solution to Social Security’s problems, and President Bush specifically charged the Commission with devising a plan that would not change benefits for retirees or those about to retire. TSCL members are urged to contact your Members of Congress to tell them how much you depend on your COLA. To rely on COLA cuts to save Social Security puts a disproportionate financial burden on the backs of seniors and is contrary to President Bush’s promise.

Sources:

"2001 COLA--Impact of 0.8% Cut" independent study for TSCL. Average benefit as of 10/18/00 from Social Security Administration. CPI estimates from the July 2000 Congressional Budget Office Economic & Budget Update.

"How the Notch Affects COLAs," independent study for TSCL. Based on data from chart "Old vs. New Law-Benefit Differentials" "Congressional Intent Concerning the "Notch" Issue," a paper prepared for The Commission on the Social Security "Notch" Issue, James W. Kelley, and Joseph R. Humphreys, December 31, 1994.