A Stealth Social Security Benefit Cut That Would Especially Hurt Women

We keep hearing that one of the options that's still on the table for both parties in deficit reduction discussions is changing the way inflation is calculated for federal programs. What could be more technical (or more boring)?

But watch out. This change would mean a cut in Social Security benefits for all beneficiaries, including current retirees. And it would especially hurt women, as a new NWLC report explains.

Social Security benefits are currently adjusted for inflation to protect their purchasing power as beneficiaries age. The proposal would switch the index used for cost of living adjustments (COLAs) from what is currently used, the CPI-W, to the chained CPI. The chained CPI produces lower estimates of inflation each year than the current CPI-W. (That's why it saves money for the federal budget.) So Social Security beneficiaries would receive a smaller COLA each year than they would under current. The really dangerous part is that the cut gets deeper the longer a beneficiary lives.

For women, this proposal delivers a triple whammy because of women’s greater longevity, greater reliance on Social Security, and increased economic vulnerability as they age.

Here's an example of how harmful switching to the chained CPI would be: The typical elderly woman who lives alone has a monthly Social Security benefit of $1,100. If a woman claimed this benefit at 65 under the chained CPI, her monthly benefit would be $56 per month less at age 80 ($672 per year) compared to what she would get under current law. $56 a month might not sound like a lot to some policy makers, but it is the equivalent of more than one week of food each month, or 13 weeks of food that year.

And these cuts to annual benefits will add up dramatically as beneficiaries age. A woman with an initial benefit of $1,100 will have lost more than $6,300 by age 80 and more than $15,000 by age 90 — the equivalent of more than a year's worth of benefits:

Supporters of this proposal claim that the chained CPI is a more accurate way of measuring inflation. But there’s strong evidence that the current way we adjust Social Security benefits for inflation is already too low. The current CPI-W is based on the budget of an average consumer rather than of an older person. This means that the CPI-W fails to take into account a crucial fact:  older individuals spend a much larger share of their budget on health care, where costs are rising far more quickly than expenses overall. A more accurate measure of changes in the cost of living for Social Security beneficiaries would use a special price index for the elderly and would increase cost-of-living adjustments, not erode them further, as the chained CPI would do.

Switching to the CPI is a benefit cut, pure and simple — and it's one that would be especially painful for women.