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Articles | A New Social Security Notch? Bad News for People Born in 1947
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A New Social Security 'Notch'? Bad News for People Born in 1947
Andrew G. Biggs
May 25, 2010
This year, Social Security benefits received no Cost-of-Living Adjustment (COLA)
for the first time since automatic adjustments were adopted in 1975. While
current beneficiaries perceive themselves to be harmed, they were compensated by
receiving a higher-than-normal 5.8-percent COLA payment in 2009. However,
a quirk in Social Security's benefit formula will produce lower benefits for new
retirees, presenting a stronger case for help.
Social Security's formula for granting COLAs, interacting with a spike in
inflation during 2008, could reduce benefits for individuals born in 1947 by
around 2.6 percent relative to the average benefits received by the 1930-1946
birth cohorts, costing a typical couple over $12,000 over the course of their
retirement.
According to the Center for Retirement Research at Boston College,
policymakers should consider adjusting benefits for these individuals and
implementing longer-term reforms to reduce the likelihood of future
"notches."
A new brief released yesterday from the center describes the Social
Security notch of the 1970s and explains how Social Security's benefit formula
works.
The brief also takes a look at how the experience of 2008 has created a new
type of notch, and how replacement rates vary for different birth cohorts --
concluding that some adjustment for the 1947 cohort is both popular and
sensible.
To read the full brief ( 8-page PDF), go to:
http://crr.bc.edu/images/stories/Briefs/ib_10-9.pdf About the Author
Andrew G. Biggs is a resident scholar at the American Enterprise Institute
and a research associate of the Center for Retirement Research at Boston
College. He previously served as the principal deputy commissioner of the Social
Security Administration (SSA), as well as the SSA deputy commissioner for
policy.
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Overview - CSRS
