Lower Social Security Checks for 1947-Born Retirees

A quirk in the benefits formula means some retirees will get reduced payouts.

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Individuals born in 1947 will get lower Social Security benefits than older and younger retirees. Those age 62 in 2009 will receive checks 2.6 percent below payments made to retirees born between 1930 and 1946, according to Center for Retirement Research at Boston College calculations released today. For a 1947-born retired couple receiving $2,347 monthly, this benefit decrease costs them $749 per year. If they both live until age 83, the couple will lose $12,729 over their lifetime.

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This reduction in benefits for a small group of retirees was caused by a spike in inflation in 2008. Rising energy prices led the Consumer Price Index for Urban Wage Earners and Clerical Workers to shoot up in mid-2008. Consequently, a significantly above average 5.8 percent Social Security cost-of-living adjustment was announced in the fall of 2008, the largest increase since 1982. However, shortly after the benefit boost was implemented prices declined rapidly. “In effect, the 2009 Social Security cost-of-living adjustment compensated current beneficiaries for an increase in prices that no longer existed,” writes Andrew Biggs, a resident scholar at the American Enterprise Institute and a research associate at Boston College. “Thus, the buying power of Social Security benefits increased significantly.”

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Social Security will not pay another cost-of-living adjustment until the Consumer Price Index exceeds its 2008 high. No cost-of-living adjustment was paid in January 2010 and no increase is currently projected for 2011. Individuals born in 1947, however, never received the 5.8 percent Social Security boost paid in January 2009. For those who turned 62 in 2009, not getting a cost-of-living increase in 2010 and 2011 means they will receive lower benefits throughout their lifetime.

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Delaying retirement until after cost-of-living increases resume in 2012 won’t help 1947-born retirees to recoup their benefits. Social Security payouts are calculated based on your work record at age 62 and then adjusted with annual cost-of-living increases, additional work, and delayed retirement credits. “A 62-year-old in 2009 will be subject to the zero cost-of-living adjustments for 2011 and 2012, even if he has not yet claimed benefits,” says Biggs. “His benefits, whenever claimed, will have declined in real terms due to inflation during 2010 and 2011.”