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Cutting Social Security Benefits Not the Way to Go


Wednesday, May 8, 2013
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Since President Obama released his budget last month, I’ve heard from constituents throughout the Central Coast with comments and concerns, especially about one specific provision: the President’s inclusion of the Republican proposal to change how Social Security cost of living adjustments are made by using a benefit calculation called “chained CPI.”

The President has said he would only be willing to consider this change in conjunction with a balanced plan of revenue increases and other spending cuts to bring our deficit in line. While I appreciate his willingness to once again go the extra mile in an effort to find compromise, this proposed change to Social Security is just a bad idea.

First, Social Security is not the cause of our record deficits. In fact, excess Social Security taxes have been used to cover the actual size of the deficit for years.

Second, and most importantly, switching to chained CPI would actually lead to benefit cuts for seniors, persons with disabilities, and veterans on the Central Coast and around the country. There is no reason to cut benefits in a program that millions depend on when that program—Social Security—is not responsible for our deficit.

Proponents of switching to chained CPI claim that it’s a more accurate way to calculate cost of living because it takes into account consumers’ decisions to substitute similar but cheaper products when prices change. For example, rising prices of beef may cause consumers to switch to chicken, pork or to forego eating meat altogether to save money.

But there is a huge debate about whether “chained CPI” is more accurate for seniors. In fact, many economists believe we currently understate seniors’ cost of living because the elderly spend a much higher percentage of their incomes on utilities, housing and, of course, health care. These expenses are much harder, if not impossible, to substitute for than food. In addition, health care costs, a large share of the average senior’s budget, regularly increase faster than other products and services.

Since its inception, Social Security has lifted millions of seniors out of poverty, allowing them to live independently and with dignity. While Social Security has been a wildly successful anti-poverty program—it’s helped reduce the poverty rate for the elderly to less than 10 percent—its benefits are not especially generous. In fact, the average Social Security benefit is about $13,000 per year. And for seniors on the lower half of the economic ladder, Social Security benefits represent 80 percent of their total income.

It is also unsettling that proposals to cut Social Security benefits are happening while most Americans face more uncertainty in planning for retirement. Many financial planners used to talk about retirement savings as a “three-legged stool,” with the legs representing pension benefits, private savings like 401(k)s and IRAs, and Social Security benefits. But the reality today is that two of the three legs on the stool are increasingly less sturdy.

For example, far fewer employers offer defined benefit pension plans today, opting instead to offer 401(k) plans. In 1980, approximately 40 percent of private-sector workers had a guaranteed pension from their employer. But by 2006, that figure had fallen to just 15 percent.

And while 42 percent of American workers today are covered by a 401(k) plan, the average value of a private retirement plan for a person nearing retirement is only $30,000, which experts say is not nearly enough.

In addition, unlike pensions and Social Security, private savings like IRAs and 401(k) plans carry substantial risks. That includes savers not starting early enough either because they didn’t make enough money or faced other important financial challenges in life. And IRAs and 401(k) plans are also subject to the vagaries of the stock market, as we have seen during this past half dozen years as financial markets melted down and took retirement savings with it.

This challenge makes Social Security more, not less, essential for retirees and those nearing retirement. And this is especially true for women, who live longer and frequently have fewer savings because they don’t earn as much as men and often move in and out of the workforce to raise and care for their families.

We need to bring our deficit under control, but cutting Social Security benefits is the wrong way to go. Social Security is a lifeline for millions of seniors at or near retirement. There are better ways to address our deficits than by weakening that lifeline.

Lois Capps represents California's 23rd District, including Santa Barbara, in the U.S. Congress

Comments

Independent Discussion Guidelines

We pay thru the nose for ss benefits ,we will never see our total contributions in our lifetime especially when you are self employed and they want to cut our benefits ,damn bunch of crooks!!!

grumpy1950 (anonymous profile)
May 8, 2013 at 11:15 p.m. (Suggest removal)

Thank you Rep. Capps!

Ken_Volok (anonymous profile)
May 9, 2013 at 1:09 a.m. (Suggest removal)

thank you for this, Rep. Capps.
For all those blowhards chanting "change pension plans to 401(k)s" she answers that. She is correct that "IRAs and 401(k) plans are also subject to the vagaries of the stock market" -- where's the 'social security' in that? And quit blaming Social Security for our federal deficits! For Republicans, blame that fool and war criminal Bush '43 for these huge deficits and costly stupid wars: you guys voted him in.

DrDan (anonymous profile)
May 9, 2013 at 4:17 a.m. (Suggest removal)

Do a little due diligence before you post Dan. We've had more deficits incurred under 4 years of Obama than we had under 8 years of Bush.

And thanks Lois Capps for criticizing the proposed solution without offering one of your own.

Botany (anonymous profile)
May 9, 2013 at 6:03 a.m. (Suggest removal)

Putting your retirement into a 401k is akin to putting it on the blackjack table.
And thanks Botany for offering a solution of your own, or anything positive or constructive at all from under the safety of your pseudynomic rock.

Ken_Volok (anonymous profile)
May 9, 2013 at 9:57 a.m. (Suggest removal)

Yeah, I've got a solution Ken, not that you have any interest in hearing it though.

Botany (anonymous profile)
May 9, 2013 at 10:06 a.m. (Suggest removal)

Well when you have enough energy to type it up and post it; I'll give it a perusal.

Ken_Volok (anonymous profile)
May 9, 2013 at 10:13 a.m. (Suggest removal)

It's possible to successfully fund a retirement using 401(k)'s and IRA's ... but for the vast majority of Americans, they have turned out to be the wrong vehicles.

I encourage anyone who cares about retirement to watch this recent PBS Frontline episode, The Retirement Gamble:

http://www.pbs.org/wgbh/pages/frontli...

EastBeach (anonymous profile)
May 9, 2013 at 10:25 a.m. (Suggest removal)

agreed EB that it's possible, and with thriftiness (a virtue in my book, too), to fund a retirement with 401(k)s and IRAs... however, the fact is "the average value of a private retirement plan for a person nearing retirement is only $30,000". Thus, it isn't happening for most. My basic math says the monthly pension payout on that is quite small. One would need in the range of at least $300,000 in his or her 401, and even that would vary as the market bounces around.

DrDan (anonymous profile)
May 9, 2013 at 12:07 p.m. (Suggest removal)

don't agree, Botany, but remember "federal budget deficit" is a year by year number, we aren't talking about the disastrous growth of the overall federal debt.
Obama runs the smallest deficits since Ike: from FORBES magazine this Feb. http://www.forbes.com/sites/rickungar...

DrDan (anonymous profile)
May 9, 2013 at 12:18 p.m. (Suggest removal)

I think if we erased political parties we'd get better informed commentary.

Ken_Volok (anonymous profile)
May 9, 2013 at 12:36 p.m. (Suggest removal)

@DrDan ... I dug up some more info ... Fidelity Investments has been tracking 401k balances of their clients for about 12 years now. Their last survey was released last February:

http://www.pionline.com/article/20130...

So among Fidelity's 12 million participants, those categorized as "pre-retirees, 55 and over" had an average balance of $143,000. That is an abysmal number!

Current rules of thumb say someone retiring today needs a nest egg that's 10 to 15 times their annual income.

So if someone making $75K per year retires now, they would need $750K to $1.125M in order to maintain their existing lifestyle without running out of money before they go to the great emporium in the sky.

So assuming that average 55-year old Fidelity client has $143,000 now, will reap 4% per year, and save $20K per year, this calculator says that person's nest egg will be $461,000 by the time he wants to retire at age 65.

http://www.bankrate.com/calculators/s...

That's at best a 50% shortfall!

Even if Social Security remains intact, retirement for many generations of average Americans looks not so good.

EastBeach (anonymous profile)
May 9, 2013 at 10:42 p.m. (Suggest removal)

robot makes up stuff and thinks that some here are partisan when we really just want non-fiction. Leave the fiction for entertainment (movies, books, clowns).

spacey (anonymous profile)
May 9, 2013 at 10:58 p.m. (Suggest removal)

I am 72 yr old. Wife and I both receive Payments from the Roosevelt-Ponzi Scheme. In the years post-WW2, SS became a re-election program, where SS payments were increased in election years. Increases were based on inflation, and in many cases, included an extra amount, to show that the incumbents cared. At the same time, the DC ruling class observed the large pile of cash in SS Trust Fund, and "borrowed" it for their own benefit. The cookie jar is now empty. Future payments will require either more borrowing/deficits, higher taxes, lower benefits or some combination. The history of the SS Trust Fund proves that no one in DC can be Trusted. We are on our own.

Congressperson Capps editorial is strictly partisan politics, with no recognition of the magnitude of the problem or discussion of the fiscal realities.

Ponzi schemes never end well!

vangary (anonymous profile)
May 14, 2013 at 12:31 p.m. (Suggest removal)

I doubt the veracity of the your comments Vangary. The facts alone disprove the thrust of your argument which calls into question whether you are in any way shape or form a 72yo pensioner. Certainly not one dependent upon the program into which they paid into.
There's been war on SS from day one from the Feudalists.

Ken_Volok (anonymous profile)
May 14, 2013 at 12:56 p.m. (Suggest removal)

Nice article, very good points. However, the question is, are you going to hold this position? If the President and the House majority come close to a deal, are you willing to stand in the breech for seniors and say, "No way!"? Can and will, you do that? We've seen this administration cave time and again. Why should we think that you won't 'find' a reason to do likewise?

dlusiond (anonymous profile)
May 14, 2013 at 12:58 p.m. (Suggest removal)

Social Security is good to at least 2035, and as Robt. Reich and others have shown, with some tweaks it can last even longer. Vangary, not sure what you're complaining about since you've been on the SocSec payouts for some years (I assume at age 72)...if you are really worried, worry about those 45 or 55 who will possibly face a lot more problems than you will with SocSec.

DrDan (anonymous profile)
May 14, 2013 at 2:28 p.m. (Suggest removal)

I’m a retired economist that depends on Social Security for most of my income. I've been a strong supporter of Rep. Lois Capps, and have volunteered in and contributed to her campaigns. And I support the Chained-CPI, if it can lead to a compromise with Republicans on raising taxes on the wealthy and funding infrastructure projects to curb unemployment. I read the LA Times and NY Times daily and have not seen any arguments by economists against the logic of the Chained-CPI. I believe it’s an accurate observation that the typical basket of goods on which the CPI is based is different for seniors than for the general population. Further, the Chained-CPI does not cut social security benefits; it minutely lowers annual increases scheduled under the current system. Finally, a senior earning the average social security benefit of $13,000-per-year qualifies for Medicaid, meaning their medical expenses are practically zero. While I will continue to be a strong supporter of Rep. Capps, I’m hoping she’ll reconsider her position on this issue based on further input from her constituents. The real problem here is that the Republican Congress is forcing us to discuss this option.

Carmelo (anonymous profile)
May 14, 2013 at 3:30 p.m. (Suggest removal)

Nobody is forcing us to discuss the option. I ignore stupid, bad ideas all the time. Not every idea is valid. Obama is the one who put it out as an option, the Republicans won the election after all.

Ken_Volok (anonymous profile)
May 14, 2013 at 3:59 p.m. (Suggest removal)

Lois Capps, typically big-hearted and generous when it comes to defending benefits, but seemingly short on solutions to make them sustainable. She is right, however, SS is not the major fiscal drain. We already spend 40% more on Medicare expenses than are received as Medicare income for the program. That other 40% comes from the general tax fund which could be used to build a better future for America.

dothemath (anonymous profile)
May 14, 2013 at 4:34 p.m. (Suggest removal)

As a retiree on a fixed income I am very appreciative of Capp's thoughts on this matter, but we have to start finding ways to solve our budget deficit and to make Social Security solvent far into the future. What is her program to solve these issues?

Sammy685 (anonymous profile)
May 14, 2013 at 9:22 p.m. (Suggest removal)

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