Proposals to Cut Social Security Benefits will Significantly Impact Retirement Income for Low-and Middle-Class Retirees

Despite the fact that Social Security is fully funded through 2039,
there have been calls to cut Social Security benefits in an effort to
reduce the long-term budget deficit. A new
analysis from the Center for Economic
and Policy Research (CEPR) finds that three of the most common
proposals to cut Social Security would have a substantial negative
impact on low- and middle-income families.

"There is a great deal of talk in policy circles about cutting Social
Security, but very little discussion of the financial situation of
those affected by the cuts," said Dean Baker,
co-director of CEPR and an author of the report.

The study, "The
Impact of Social Security Cuts on Retiree Income," analyzes three of
the most common proposals for reducing Social Security benefits and
calculates the implied cut in benefits and income for various age groups
and income quintiles of near and current retirees. The proposals
examined are the adoption of progressive price indexation, raising the
retirement age to 70 by 2036 and reducing the annual cost-of-living
adjustment or COLA by 1.0 percent below the rate of inflation. It is
worth noting that these proposals would only have a negligible
impact on the deficit over the course of the next 10 years.

The analysis of the proposed cuts show:

• The most frequently suggested PPI formula would imply cuts in
  benefits of 6.2 percent for a household in the in the middle income
  quintile between the ages of 45-49 in 2007 and 9.6 percent for a
  household in the middle quintile between the ages of 40 and 44 in
  2007
• Raising the normal retirement age 70 in 2036 would result in a
  4.0 percent reduction in benefits for workers between the ages of
  50 and 54 in 2007 and a 10.0 percent reduction for workers between
  the ages of 40-44
• Reducing the COLA by 1.0 percent would result in a benefits cut
  of 12 percent for a retiree at age 75 and more than 20 percent at
  age 85
• For retirees in the bottom income quintile at age 85 who were
  between the ages of 55 and 59 in 2007, reducing the COLA by 1.0
  percent implies a 14.6 percent reduction in income and a cut of 16.
  5 percent for retirees in the bottom quintile at age 85 between
  the ages of 40-44.

"The vast majority of near-retirees will rely on Social Security for
most of their income in retirement," said Baker. "All of these proposals
will result in significant cuts in income for low- and/or middle-
families."

The full report can be found here.