But wait, there’s more to the story than choosing hamburger instead of steak. It’s called how seniors actually live and make choices in the real world, something too often forgotten in the land of policy wonks and the Washington press. They may not substitute eat-at-home as the string of economists suggest. Social Security expert Alicia Munnell, also an economist who runs the Center for Retirement Research Center at Boston College (and whom I interviewed here), told the New York Times, which last year reported one of the better stories on the topic: “If you are down to paying your rent and your food, and the price of your food goes up, you probably just eat less.” Munnell could have added they pay for their medicine before buying groceries.
The chained CPI increases benefits 0.3 percent less than the current formula, and the slower increase in benefits compounds every year, meaning that as someone gets older, the effect is greater as the below chart shows (click on it to enlarge). A person age 75 will get a yearly benefit that is $653 lower than someone would get under current arrangements, while someone age 85 will have $1,139 less to live on. That pinches.
As the nonpartisan, nonprofit National Academy of Social Insurance noted in one of its fact sheets:
Because Social Security provides an ever-greater share of elders’ incomes as they grow older—as pensions are eroded by inflation, employment options end, and savings are depleted—even a minor erosion of the real value of benefits is a public policy concern.
So far, the press has given this public policy concern the brush off. The task for jounos is not so much explaining the intricacies of the chained CPI or the current consumer price index, or to pass along the notion that the change is simply a technical tweak, but to broaden the debate perhaps with some of the 300 economists and social scientists who recently issued a statement opposing the chained CPI or those who work with older adults and learn how real people, especially the oldest of the old, actually spend their money. In a New York Times op-ed last summer, New School economist and pension expert Teresa Ghilarducci wrote “the specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers.”
The elephant in the room, of course, is health care and the increasing costs seniors will bear in the form of higher cost sharing which will be required soon under the most popular Medigap plans. They will also face higher Part B premiums especially if more seniors must pay the higher income-related premium, a provision likely to be in the deficit reduction mix. An annual cut of $653 for 75-year-olds may not sound like much to wealthy bankers, but it might help seniors pay higher Part B premiums or their increased out-of-pocket medical costs.
The Post editorial gave a quick nod to the problem of rising medical costs, but argued the “immediate impact [of the changes] is negligible” and future retirees have time to adjust. It noted that a “modest lump sum” could be given to people “well into their 80s” to help them out with increasing expenses. The Simpson-Bowles deficit commission report called for beneficiaries to receive a small increase after they’ve been getting Social Security checks for 20 years. How helpful is this especially for older women whose income may only be around $1100 a month, the average benefit for all social security beneficiaries? “Aging is the gateway to poverty,” Ghilarducci says. This is a good place for the media to begin connecting the dots among proposed changes to Social Security that lower benefits and the proposed changes to Medicare that raise expenses for health care. How will seniors manage?