July 2010, Dean Baker and David Rosnick


There has been a serious push in policy circles to cut Social Security benefits for near- and/or current retirees. The argument for such cuts has been based on the deficits in the federal budget; the finances of the Social Security program have been at most a secondary consideration. However, the finances of the current or near-retirees who would be affected by these cuts have also largely been ignored in this discussion. This is striking because this group has been hardest hit by the collapse of the housing bubble and the resulting plunge in stock prices. These workers had accumulated some wealth – mostly in the form of home equity – which they stood to lose as a result of the crisis. Since they are at or near retirement age, they will have little opportunity to replace their lost wealth.

This paper assesses the cuts implied by three common proposals for reducing Social Security benefits:
  1. Adopting a “progressive price” indexation (PPI) formula for the basic benefit structure,
  2. Accelerating and extending the increase in the normal retirement age, and
  3. Reducing the annual cost-of-living adjustment. It calculates the implied cut in benefits and projected income for various age groups and income quintiles of retirees and near-retirees.

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