How Will the Fiscal Cliff Debate Affect Californians' Retirement Security?

Dec 05, 2012, 18:03 ET from AARP

AARP's Analysis Shows How a Last-Minute Budget Deal Could Affect Millions of California Seniors

SACRAMENTO, Calif., Dec. 5, 2012 /PRNewswire-USNewswire/ -- With the Dec. 31st deadline to address expiring tax and spending cuts looming, many people in California and across the nation are left wondering what Washington's budget debate means for them.  Unfortunately, some in Washington are considering cramming changes to Medicare and Social Security into a year-end budget deal. Because of this, AARP is publishing breakdown of the impact a short-sighted budget deal could have on the health and retirement security of California seniors -- as well and their children and grandchildren.

Social Security in California:

In California, nearly 3.7 million seniors currently receive Social Security benefits, at an average annual benefit of $13,800.  Social Security makes up about 52% of the typical older Californian's income, and these benefits keep 28% beneficiaries out of poverty.  In addition, Social Security payments to beneficiaries pump $66.7 billion annually into California's economy. Changing the way cost of living adjustments (COLA) are calculated for Social Security beneficiaries by moving to a chained consumer price index (CPI), a proposal currently on the table in debt deal discussions, would cut these benefits, taking roughly $10.4 billion out of the pockets of California's Social Security beneficiaries over the next 10 years – and $112 billion for beneficiaries nationwide.   

"The way the current Social Security COLA is calculated already understates what the average older Californian spends each month.  Expecting that Social Security beneficiaries, most of whom are barely getting by as it is, can simply lower their spending on prescription drugs, utilities and other fixed expenses is out of touch with reality," said AARP California State Director Katie Hirning. "Millions of people who worked hard for years to earn these benefits deserve better than to get pushed over this fiscal cliff. Social Security is not a cause of the budget deficit and it therefore shouldn't be used to resolve it."

Medicare in California:

Roughly 4.1 million Californians are enrolled in Medicare, each spending an average of 15% of their income (approximately $4,000) on out-of-pocket medical expenses each year. In 2011, Medicare spent an estimated $33.4 billion on health care services in California.  Should Congress to raise the Medicare eligibility age from 65 to 67, more than 580,000 Californians would be without health coverage (based on current beneficiary data), forcing them into the private insurance market at an estimated additional cost of $2,200 per year*. Moreover, removing the youngest and healthiest older Americans from the Medicare risk pool would increase premiums for those remaining in the program.

"Raising the Medicare eligibility age would dramatically increase out-of-pocket costs for recently retired and soon-to-retire seniors, drive up premiums for those already enrolled in Medicare, and increase overall health care costs," added Hirning. "Instead of solving problems, these kinds of changes would create even more of them, while further damaging the retirement security of millions of people."

AARP looks forward to working with legislators on both sides of the aisle on proposals that strengthen Social Security and Medicare for all generations, but not by cramming changes to these vital programs into a last–minute deal that could harm all of us.  

*Kaiser Family Foundation study:

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