Recently President Bush proposed benefit cuts for future retirees by using "progressive indexing" in the benefit formula.[1] The proposal, which is supported by Federal Reserve Chairman Alan Greenspan,[2] would cut initial benefits for future high and middle earners while keeping benefits for lower earners about the same as currently promised. The plan introduces "price indexing" to the calculation of initial retirement benefits.

"That part of the proposal is likely to contain COLA cuts for current retirees, despite repeated assurances not to cut the benefits of current retirees," says George Smith, Chairman of TREA Senior Citizens League (TSCL). "Because the proposal introduces 'price indexing,' legislation would need to specify the Consumer Price Index (CPI) to be used to calculate Social Security benefits, " Smith explains. "We believe this would almost certainly mean a switch to a new, more slowly growing "chained CPI" calculation than the one currently used," he says. Chairman Greenspan has repeatedly advocated the "chained" CPI since 1997.[3]

Social Security's Chief Actuary has estimated that basing the COLA on a new "chained" CPI would reduce the annual COLA by an average of 0 .22 percentage point.[4] According to TSCL studies, that would cut COLAs by 14% annually on average. The financial impact is cumulative in nature, having its deepest impact when retirees are older and more likely to have high cost health care needs. For example, if the government had adopted the chained CPI to calculate COLAs in 2001, a senior who retired at age 65 with an average monthly benefit of $852 would, by age 85, receive an estimated $74 per month or $866 a year less in benefits the study found.[5]

Smith says the COLA is too low already. "TSCL is fighting this "progressive indexing" proposal and supports strengthening Social Security by raising the full retirement age instead," Smith states. An early TSCL analysis found that for most retirees, raising the age at which one becomes eligible for full unreduced benefits not only results in a higher, more adequate initial retirement benefit, but more in lifetime benefits than what one would receive under progressive indexing.[6] In addition, Social Security would be strengthened without having to raise tax rates because people would pay into the system longer. "Our study also found that when retirements are delayed even for two years, the savings to Social Security were significant," Smith adds. "We urge seniors to contact their Members of Congress to protest the progressive indexing plan that amounts to a 'back door' COLA cut," Smith declares.

TSCL is a national group of politically active seniors concerned about the protection of their earned Social Security, Medicare, and other retirement benefits. TSCL members participate in a number of grassroots lobbying and public education campaigns designed to ensure governmental bodies, including the Social Security Administration and the Centers for Medicare and Medicaid Services, live up to their commitments. For more free information on our organization, please contact TREA Senior Citizens League, Department S608A, 909 N. Washington St., Suite 300, Alexandria, VA 22314, or visit our website at: www.tscl.org. 

[1] "Social Security: Help for the Poor or Help for All?" Edmund Andrews and Eduardo Porter, The New York Times, May 1, 2005. [2] "Three Groups of Lawmakers Look to Lower the Voltage," Alex Wayne, CQ Today, February 7, 2005. [3] Testimony of Alan Greenspan on The Consumer Price Index Before the Senate Finance Committee, January 30, 1997. [4] Estimated Financial Effects For a Proposal With Six Provisions," Memo to Robert M. Ball, From Stephen C. Goss, Chief Actuary, Social Security Administration, April 14, 2005. [5] 2005 Chained CPI Study, Retiree With Average Benefit $852, Mary Johnson, February 14, 2005. [6] Raising the Retirement Age/Progressive Indexing Analysis, Mary Johnson, TSCL, May 13, 2005. 

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June 2005