Retirement Blog

• Tweet
• 
• Email

• Tweet
• 
• Email

If you were born in 1947, Social Security has bad news for you and your retirement planning. Because of a peculiarity in the way Social Security is calculated, you are going to be shorted thousands of dollars' worth of  retirement benefits -- unless Congress fixes the new "notch."

Here's the deal: According to the Center for Retirement Research at Boston College, the calculations on which Social Security is based aren't adjusted for inflation or even for an increase in earnings for people between the ages of 60 and 62. Most of the time that doesn't make any difference, but if you were born in 1947, you entered that hiatus in 2008, the year that Social Security recipients got a record-high 5.8 percent cost-of-living increase -- payable in January 2009 -- followed by two years of no increases.

Missing the increase means that people born in 1947 fall permanently behind. The center calculates that an average couple born in 1947 and claiming Social Security at 62 would receive a monthly payment of $2,374, $749 per year less than they would have received if they had been born in 1946. If they survive to 83, which is how long Social Security's actuaries think they'll live, this couple will get nearly $12,729 in lifetime benefits less than they would without this "notch."

Center researcher Andrew Biggs, who was previously the principal deputy commissioner of the Social Security Administration, recommends a quick fix. He would make benefits for those born in 1947 comparable to what those born in 1946 get by giving the 1947 crowd a 3.5 percent immediate raise. At the very least, he would give them a 2.7 percent increase, which would keep them in line with the amount received by those born between 1930 and 1946.

In order to keep this notch situation from happening again -- it happened before for individuals born from 1917 through 1921 and created a squawk every year from 1972 until the recipients were too old to complain -- Biggs, who is also a resident scholar for the American Enterprise Institute, recommends fixing the underlying problem quickly. He suggests either changing procedures and adjusting cost of living and earnings for those between age 60 and 62, or at least reflecting any cost-of-living adjustments during those years.

I look at it this way, $749 per year is the cost of an annual bargain cruise for me and the hubby. If I were born in 1947, I would want my cruise.

Financial journalist Jennie L. Phipps writes about retirement planning from the viewpoint of a baby boomer who is as concerned about retirement issues as most others of her generation.