Washington, D.C. – 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. This 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.
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.
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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. All of these proposals will result in significant cuts in income for low- and/or middle- class retirees.
The full report can be found here.