As expected, President Obama’s FY 14 budget includes a proposal to use the “chained Consumer Price Index” – a slower-growing measure of inflation that would cut Social Security benefits by reducing annual cost-of-living adjustments. This is not just a technical change – but a benefit cut that would cause real hardship to the elderly and the poor. The President’s budget recognizes this threat and proposes some protections for vulnerable beneficiaries from the chained CPI – but NWLC analysis shows that this strategy is not adequate.

The budget proposes a bump-up in benefits for long-term beneficiaries, who would experience the worst cuts because the cuts grow deeper every year. In addition, the budget would not apply the chained CPI to needs-based benefit programs, such as Supplemental Security Income, or use it to determine eligibility for programs like SNAP (Food Stamps).

NWLC’s analysis finds that the small and gradual benefit increases from the bump-ups wouldn’t restore the monthly benefit of the typical single elderly woman to current-law levels—unless she lives to 104. Who’s the typical single elderly woman? She’s a woman with a Social Security benefit of about $1,100 per month ($13,200 per year), which is the median benefit for single women 65 and older. Her total annual income is about $18,000, so Social Security represents about 73 percent of her income. (Women are even more reliant on Social Security as they age: for four in ten women age 80 and older, Social Security represents virtually all of their income.)

The proposed bump-up is a small increase that would start at age 76 and phase in over 10 years (starting at about $6.70 per month in the first year and reaching about $67 per month in the tenth year). A second, similar bump-up would start phasing in at age 95.

The chart below shows that the bump-ups would reduce the cut from the chained CPI – but not fully offset it unless she lives to 104.

Effect of Chained CPI and Bump-Up in President's Budget on the Monthly Social Security Benefit of A Typical Single Elderly Woman

In addition, the amounts she loses each month and each year add up over time. This chart shows the cumulative losses – even with two bump-ups – by age 104.

Cumulative Loss in Social Security Benefits for a Typical Single Elderly Woman  with the Chained CPI and Bump-up in President's Budget

But the real problem with President Obama’s chained CPI proposal isn’t the design of the bump-up. (The Republican Study Committee budget, which proposes adopting the chained CPI with no bump-up and no exemption for need-based benefit programs, is far worse.) The problem is with the chained CPI itself, as we’ve explained before, and with putting Social Security benefit cuts on the table in deficit-reduction negotiations.

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