Posted on June 24, 2011 Issues: Data on Poverty & Income Federal Budget Social Security

(Washington, D.C.)  Today the National Women’s Law Center (NWLC) released a new report that shows how deficit reduction proposals to change the way cost of living adjustments (COLAs) are calculated in federal benefit programs—such as Social Security—underestimate the effect of inflation on the elderly and would especially harm women. The proposed switch to a new measure of inflation may appear to be a mere technical adjustment, but this report shows how the change will result in significant cuts to Social Security benefits that deepen over the years and dramatically increase economic insecurity among the elderly—especially women.

The proposed change delivers a triple whammy to women, according to NWLC’s report, Cutting the Social Security COLA by Changing the Way Inflation is Calculated Would Especially Hurt Women (view the report: Since women live longer than men, they face deeper cuts in their Social Security benefits under the proposed new measure of inflation, known as the “chained Consumer Price Index,” because the cuts from this reduced COLA get deeper each year. Women rely more on income from Social Security, so these cuts would represent a larger share of their total retirement income. And since older women are already more economically vulnerable than older men, these cuts would leave many of them unable to meet basic needs.

“This proposal is a stealth attack on the economic security of older women,” said Joan Entmacher, NWLC Vice-President for Family Economic Security. “That is a shameful way to solve our nation’s deficit problem.”

Various deficit-reduction plans call for switching to the chained CPI, and it is reportedly being considered in the deficit talks convened by Vice President Joe Biden.

NWLC’s analysis uncovers some stark facts. For a woman who gets a benefit of $1,100 at age 65—approximately the median monthly benefit of all single women 65 and older—replacing the current cost of living adjustment with the chained CPI would mean $56 less per month and $672 less per year at age 80.

“That may not sound like a big cut to some Members of Congress—but it translates to a loss of more than a week’s worth of food per month or 13 weeks of food in a year,” said Entmacher. At age 90, that would mean $87 less per month and over $1,000 less that year—equivalent to 20 weeks of food that year. These cuts accumulate and add up dramatically as women 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.

NWLC’s report highlights how the current cost of living adjustment already underestimates the effects of inflation on the elderly and fails to account for a crucial fact—that older people spend a much larger share of their budget on health care, where costs are rising much more quickly than with other expenses.

The “chained CPI” produces even lower estimates of inflation than the current measure of inflation because it adjusts for consumers’ substituting cheaper goods for more expensive items when prices go up.

A more accurate measure of the changes in the cost of living for Social Security beneficiaries would use a separate price index for the elderly reflecting the dramatic inflation in health care costs that disproportionately burden them. “With most Americans, especially women, facing an increasingly insecure retirement, we should be improving benefits for the elderly—not reducing them,” she said.

“The average Social Security benefit for a woman now is just $12,000 a year—far from extravagant,” Entmacher said. “But without Social Security, one in two older women would fall into poverty and many more would be financially dependent on others. Elderly women simply can’t afford to lose any of their already modest benefits.

“Since Social Security is independently financed by workers and their employers, cutting it is not an appropriate way of reducing the federal deficit. And the burden of reducing the deficit should not fall on the backs of one of our country’s most vulnerable groups—elderly women—who deserve more than spare change from our nation’s leaders.”

View the report: