According to a Pew Charitable Trusts study released Thursday, baby boomers and Generation Xers are increasingly unlikely to be able to afford the costs of retirement, making critical the need for a strong Social Security program to bridge this income gap. Instead of weakening the social safety net by using the "chained CPI" to reduce Social Security cost-of-living increases, this study proves that we need to increase the protections for the elderly to make sure they can maintain their standard of living.
In order to do this, Iowa Sen. Tom Harkin has put forth a bill that would strengthen Social Security, not weaken it, as President Obama’s budget have proposed. The Strengthening Social Security Act of 2013 (S. 567) would help place a bridge over the gap where America’s seniors are falling short. You can support this effort by signing this MoveOn petition, which is currently 12,000 signatures away from its goal of 100,000.
The Pew study’s findings are troubling. The study found that while early baby boomers may be in a better position to have a secure retirement as beneficiaries of the housing bubble and dot-com boom of the 1990s and early 2000s, those born after 1955 would have a much tougher time trying to secure their retirement. While most financial planners suggest being able to replace 70 percent of your earned income during retirement, the Pew study found that many late baby boomers will only be able to replace 60 percent of their current income, and Gen-Xers will only be able to replace half of their pre-retirement income.
The Pew study found that early baby boomers might well be the last generation to be able to afford a secure retirement, with late baby boomers and Gen-Xers accumulating too much debt from credit cards, mortgages and student loans to retire securely. Gen-Xers, who did not have the most solid financial foundation to start, took the hardest hit from the Great Recession, losing nearly half of their wealth in the crash.
With these findings, and the fact that an increasing number of seniors rely on their Social Security checks for between 50 percent and 90 percent of their income, it is easy to see that the chained CPI is going to hurt millions of seniors. The chained CPI uses the substitutions for cheaper items consumers make in response to inflation to come up with a cost-of-living increase that is a bit lower than the standard consumer price index. But the chained CPI does not take into account the items that comprise a higher share of spending for seniors, such as health care and housing, that tend to have a higher inflation rate thanconsumer goods generally. Researchers estimate that chained CPI would mean an average benefit cut of over $1,000 a year for someone who retires at age 65 and lives to be 95. Clearly, with so many people having a decreased ability to enough for retirement, now is the exact wrong time to be cutting Social Security benefits.
While the chained CPI would cut Social Security benefits to seniors, the Strengthen Social Security Act of 2013 would provide a form of relief. According to Senator Harkin’s office, the bill would:
- Strengthen Benefits by Reforming the Social Security Benefit Formula: To improve benefits for current and future Social Security beneficiaries, the Act changes the method by which the Social Security Administration calculates Social Security benefits. This change will boost benefits for all Social Security beneficiaries by approximately $70 per month, but is targeted to help those in the low and middle of the income distribution, for whom Social Security has become an ever greater share of their retirement income.
- Ensure that Cost of Living Adjustments Adequately Reflect the Living Expenses of Retirees: The Act changes the way the Social Security Administration calculates the Cost of Living Adjustments (COLA). To ensure that benefits better reflect cost increases facing seniors, future COLAs will be based on the Consumer Price Index for the Elderly (CPI-E). Making this change to Social Security is expected to result in higher COLAs, ensuring that seniors are able to better keep up with the rising costs of essential items, like health care.
These changes would soften the blow that many Americans’ savings took during the Great Recession, and provide a stronger program of relief when we need it the most.
President Franklin Delano Roosevelt, after signing the Social Security Act of 1935, said, "We can never insure one-hundred percent of the population against one-hundred percent of the hazards and vicissitudes of life. But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”
Roosevelt had the foresight to see that America needed a safety net to protect its people from the excesses of the banks and Wall Street. From the Great Depression was born Social Security. Now, instead of recognizing that the wound from the Great Recession has not healed, there has been an attempt to short the American people by cutting a program that is increasingly important to seniors. Now that we know that many Americans will be unable to support themselves in retirement, we must not cut the program designed to insure the population against the hazards and vicissitudes of life, but strengthen it.