With the news that nearly 63 million Social Security recipients will see a 1.5% boost in their benefits next year, an average increase of $19 per month, the AARP worries that even smaller increases are in store if Washington ties them to the chained consumer price index, as proposed in President Barack Obama’s budget.
An average of just $19 per month will “quickly be consumed by the rising costs of basic needs like food, utilities and health care,” said Nancy LeaMond, Executive Vice President of AARP, in a Wednesday statement. AARP is a senior advocacy group that has supported increased Social Security benefits.
The Social Security Administration announced Wednesday that the upcoming Cost of Living Adjustment (COLA) will begin in January for the more than 57 million Social Security beneficiaries, and increased payments to the more than 8 million Supplemental Security Income recipients will begin Dec. 31.
The administration raised benefits 1.7% this year and 3.6% in 2012. There was no COLA in 2011 or 2010. Excluding those two years, the 2014 adjustment will be the smallest since 2003.
While the annual COLA is “critically important” to the Americans receiving benefits, as it provides protection against inflation, Leamond said, and “helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty,” some in Washington aim to make the “small COLA even smaller” by including the chained CPI in a budget deal.
Said LeaMond: “The chained CPI would further lower the COLA for Social Security and veterans’ benefits with cuts that would start now and grow larger every year.”
Under chained CPI, the 1.5% COLA announced Wednesday, she said, would be reduced, “putting increasing strain on millions of beneficiaries struggling to keep up with expenses.”
Indeed, Obama’s 2014 budget proposes changing the way inflation is measured to shrink cost-of-living adjustments for retirees receiving Social Security benefits. The use of a chained consumer price index for Social Security and other programs, like Supplemental Security Income and veterans pensions, would reduce government deficits by $230 billion over 10 years. A chained CPI is a lower measure of inflation, which would reduce Social Security and other benefits by $130 billion.
But AARP argues that shrinking the COLA could also negatively impact “our still fragile national economy, since every dollar of Social Security benefits generates about two dollars of economic activity.”
LeaMond cited recent research by AARP Public Policy Institute, which calculated that spending of Social Security benefits added about $1.4 trillion in total economic output to the U.S. economy in 2012.
The Social Security Administration also noted some other changes that take effect in January of each year based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $117,000 from $113,700. Of the estimated 165 million workers who will pay Social Security taxes in 2014, about 10 million will pay higher taxes as a result of the increase in the taxable maximum, the administration said.
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