In his Fiscal Year (FY) 2014 budget, President Obama proposes switching to the chained consumer price index (CPI) to calculate the cost-of-living adjustment (COLA) for Social Security. The chained CPI would lower the annual COLA, reducing the value of Social Security benefits by an amount that gets larger the longer a beneficiary lives. It would cut benefits for current beneficiaries as soon takes effect (in 2015, under the President’s budget proposal). It would be especially harmful to women, because on average they live longer than men, rely more on income from Social Security, and are already more likely to be poor. And the chained CPI is not a more accurate measure of inflation for Social Security beneficiaries: the current inflation measure already underestimates inflation for the elderly and people with disabilities, the large majority of Social Security beneficiaries, because it fails to take account of their higher health care spending.
Recognizing that the chained CPI is not just a technical change but a benefit cut that would cause real hardship for the oldest and poorest Americans, the President’s FY 2014 budget proposes some protections for vulnerable beneficiaries. First, the President’s budget proposes two small and gradual increases (“bump-ups”) in Social Security benefits to mitigate the cuts for long-term beneficiaries. Second, the President’s budget would exempt needs-based benefit programs such as Supplemental Security Income (SSI) from the chained CPI,7 and would not use the chained CPI to adjust the federal poverty guidelines, which are used to determine eligibility for dozens of federal and state programs.
This analysis examines how effective the bump-ups for long-term beneficiaries would be in protecting the typical single elderly woman – a woman with an initial benefit of $1,100 per month ($13,200 per year), the median benefit for single women 65 and older. Social Security provides about 73 percent of the median annual income for single women 65 and older, which is about $18,000.
Download the full report sheet below.