Bad News for Those Born in 1947

[Independent]

Basically, your SS benefit will be about 5% less than you thought it was going to be. The 5% reduction applies to all years, regardless of when you start benefits.

tjscott0 posted this link on another thread, but I thought it deserved its own. Bad News For Those Born In 1947 - Forbes.com

This is a quirk in the benefit indexing driven by the fact that the benefits for already retired people can't go down, even when CPI changes are negative. I can't claim that I understand the details, but I think Biggs is good enough on the details (former "deputy commissioner" at the SSA) that I trust him on this techy stuff.

He says that people born in 1948 will also be impacted, but by about half as much. Nobody else gets hit.

My interest isn't just academic. I was born in 1947, my wife in 1948 ....

 

[Notmuchlonger]

Yeah I read this too. Sorry to hear that. Doesn't seem quite right to me.

 

[Koolau]

DW's parents were in the "notch" and complained bitterly about it for the rest of their lives. Ironically, DW was born 1946 and will miss this "notch". But guess who was born in 1947? Oh, well. I honestly never thought I would receive ANY SS - 'course it could still end up that way since I've not yet begun collecting. I do expect means testing or similar at some point. Glad to do my part so you youngins will have something left.

The gummint giveth and the gummint taketh away. Blessed be the name of the gummint.

 

[haha]

Wouldn't this likely apply to anyone at or past the age of 62 who is not yet drawing benefits?

Ha

 

[growing_older]

I am not a 1947 baby, but I still have learned a lesson form this. There can be quirks and changes in the formula anytime and I may not get any advance notice of changes that could affect me or reduce my benefits. Rules can be changed at anytime.

 

[ls99]

Born in 1947. My parents had nothing to do with baby boomers. They had no idea I would ever end up in the USA.

Still with 5% less, I'll be getting 100% more than ever expected. So I call SS a windfall profit, starting the last week of Dec. this year. Not too shabby. It will more than pay for my monthly health care premiums, with change left over.

Is this a great country or what?

 

[Texas Proud]

OK... changed my mind before I posted my other thought...

The easy way to fix this is to CUT everybody's payment by the 5%... then everybody will get a COLA next year...


Simple...

 

[Bikerdude]

Wouldn't this likely apply to anyone at or past the age of 62 who is not yet drawing benefits?

Ha

Not really. SS earnings are indexed using the average wage index (AWI) until you are age 60. CPI-U increases do not begin until you are 62, so the only people affected in 2010 will be people born in 1947. People born in 1948 will be affected if no cola in 2011. I don't know why they stop the AWI at age 60.

 

[W2R]

I was born in 1948, and I'll manage. I have been expecting a lot worse, since leading edge baby boomers seem to get the shaft compared with prior generations quite frequently.

Right now I am trying to figure out whether or not I should claim SS at 66 (as I would prefer, due to familial longevity), or at 62 just to make sure that I get grandfathered in before whatever they do next to diminish our benefits.

 

[Nords]

My trend forecasting indicates that my SS (as early as 2022) should just about equal my Medicare premium...

 

[audreyh1]

My trend forecasting indicates that my SS (as early as 2022) should just about equal my Medicare premium...

Hmmm - that's kind of what I am thinking too for 65 in 2024. But at least something (maybe) will be paying for my premium. Then, again, maybe not!

Audrey

 

[donheff]

I was born in 1948 so I would normally get hit by this but I am under the old Federal retirement system so I don't get SS and I got the big 2008 COLA. Whew!! Can't say I would loose sleep over this in any event. It actually sounds to me like new retirees are getting fair treatment but current retirees (including me) got a windfall.

 

[Independent]

Like I said, I trust Biggs for this type of thing. I read him as saying that current retirees would have had a cut for 2010 because the CPI went down, but a section of the law overrides the indexing. So they will get more than they "should have" in 2010 and probably 2011. OTOH, an odd combination of separate calculations, which nobody ever looked at because they didn't really expect a falling CPI, means that this 47-48 group will get less than they "should have".

I agree with a number of posters that 5% less isn't a really big deal. I think it's still worth adjusting my planning spreadsheet.
As it happens, I read this article the same day a got bad news on health insurance from my former employer, and some more bad news from one of my kids, so I wasn't in the best mood.

 

[jdw_fire]

It actually sounds to me like new retirees are getting fair treatment but current retirees (including me) got a windfall.

what he said was that the 2009 COLA was computed based on the difference of 3rd quarter 2007 CPI and 3rd quarter 2008 CPI and was 5.8%. but something strange happened in the 4th quarter of 2008, the CPI dropped 5 % so the cost of living in calendar 2008 really only increased by .8% (his words, i didnt check) so every one who got that COLA in essence got a bigger increase then they should have and will be getting more then they should until the CPI catches up in a year or so. which means only a couple of years of excessive payment and then it straightens out.

BUT people retireing in 2009 will have their cost of living increase in 2009 but wont get a compensating COLA for 2010. and in 2010 at least some (maybe all) of the rising cost of living experienced by these 2009 retirees and the 2010 retirees also wont be compensated for because the 2011 COLA wont be as large as the rise in cost of living in 2010 since the CPI numbers have yet to return to the 3rd quarter 2008 level. sooo these 2 groups will be permenantly behind by that "catch up" amount i.e. every year they will be behind by that amount.

 

[Bikerdude]

BUT people retireing in 2009 will have their cost of living increase in 2009 but wont get a compensating COLA for 2010.

I'm collecting my SS beginning 12/2009. I do not recall getting a COLA. When should I expect it?

 

[youbet]

I'm collecting my SS beginning 12/2009. I do not recall getting a COLA. When should I expect it?

Like me, you will get your COLA in Jan 2010 which is calculated to be zero. Don't spend it all in one place!

You know, between retiring into a recession, having higher health insurance costs than planned and now this, I'm definitely not feeling like Mr. Lucky as far a retirement finances go.

 

[jdw_fire]

I'm collecting my SS beginning 12/2009. I do not recall getting a COLA. When should I expect it?

well fortunately for you (if that is when you turn 62), you wont be experiencing as much of the downside of this as someone turning 62 in jan 09. your hit will be more like someone turning 62 in 2010.

 

[youbet]

well fortunately for you (if that is when you turn 62), you wont be experiencing as much of the downside of this as someone turning 62 in jan 09. your hit will be more like someone turning 62 in 2010.

Please explain. This doesn't make sense given the explanation in the article OP referenced. I think the downside is the same regardless of when you were born in '47.

 

[jdw_fire]

Please explain. This doesn't make sense given the explanation in the article OP referenced. I think the downside is the same regardless of when you were born in '47.

ok here is what i meant but first i will make two statements 1) generally speaking the CPI goes up every month, therefore it costs a person more to live each month. 2) the first COLA a person gets on SS is prorated based on the number of months in that year said person was actually collecting SS (atleast that is the way it works with federal pensions). note: i have not checked the actual CPI monthly numbers to confirm 1) nor have i checked with SS to confirm 2).

soooo given the above, a person (A) who turns 62 in jan 09 will have their living cost go up more between the time they turn 62 and the end of 09 then some one (B) who turned 62 in dec 09. this follows from the fact that there are more months of increasing CPI between jan 09 and the end of the year (11-12 depending on the actually birthday) then there are between dec 09 and the end of the year (0-1) but given identical earnings at the time of said b-days both have the same SS payment. now if there was a positive COLA for 2010 person A wud get a bigger COLA than person B because of the proration that takes place in the 1st year which is supposed to compensate for the larger increase in living costs A experienced relative to B while each person was collecting SS. but in 2010 neither gets a COLA which results in A losing a larger amount (and thus being further behind) than B.

did that explain it well enough or was i unclear?

 

[Bikerdude]

ok here is what i meant but first i will make two statements 1) generally speaking the CPI goes up every month, therefore it costs a person more to live each month. 2) the first COLA a person gets on SS is prorated based on the number of months in that year said person was actually collecting SS (atleast that is the way it works with federal pensions). note: i have not checked the actual CPI monthly numbers to confirm 1) nor have i checked with SS to confirm 2).

soooo given the above, a person (A) who turns 62 in jan 09 will have their living cost go up more between the time they turn 62 and the end of 09 then some one (B) who turned 62 in dec 09. this follows from the fact that there are more months of increasing CPI between jan 09 and the end of the year (11-12 depending on the actually birthday) then there are between dec 09 and the end of the year (0-1) but given identical earnings at the time of said b-days both have the same SS payment. now if there was a positive COLA for 2010 person A wud get a bigger COLA than person B because of the proration that takes place in the 1st year which is supposed to compensate for the larger increase in living costs A experienced relative to B while each person was collecting SS. but in 2010 neither gets a COLA which results in A losing a larger amount (and thus being further behind) than B.

did that explain it well enough or was i unclear?

I don't think that's how it works. My understanding is you do not get a SS cola until after you have turned 62. For people born in 1947 that is 2009. People born in 1947 and turning 62 in 2009 have their first cola in 2010 which is going to be -0-. It is not done on a monthly basis AFAIK.

 

[Aussie Trooper]

Its changes like this why I hate any investment vehicle that can be dramatically changed due to goverment or statutory bodies.....

Despite the tax advantages of 401K style and pensions etc I have diverted all my investments away from them in the last several years to avoid this very situation.....

 

[youbet]

I don't think that's how it works. My understanding is you do not get a SS cola until after you have turned 62. For people born in 1947 that is 2009. People born in 1947 and turning 62 in 2009 have their first cola in 2010 which is going to be -0-. It is not done on a monthly basis AFAIK.

I agree with you Biker. It looks like all of the 1947 dob folks will forever be a "notch" due to the cola formula and rules and the timing of the cpi data. The month you were born is not a factor.

 

[jdw_fire]

I don't think that's how it works. My understanding is you do not get a SS cola until after you have turned 62. For people born in 1947 that is 2009. People born in 1947 and turning 62 in 2009 have their first cola in 2010 which is going to be -0-. It is not done on a monthly basis AFAIK.

i didnt say you get a COLA on a monthly basis. i said your living costs go up on a monthly basis. please dont confuse COLA with my use of "living cost". COLA is the SS adjustment. living cost is the change in the CPI from 1 date to another.

and i said that the SS COLA for the 1st year is prorated by the number of months you were collecting SS that 1st year. so 1/12 of zero = 11/12 of zero = zero which is why people born early in the year 1947 are at a bigger disadvantage then those born later in the same year as they lost a bigger 1st year COLA. note: 2010 is a special case for COLAs (hence this discussion) as it is the 1st time the COLA has been 0 since the COLA was tied to the CPI.

 

[jdw_fire]

I agree with you Biker. It looks like all of the 1947 dob folks will forever be a "notch" due to the cola formula and rules and the timing of the cpi data. The month you were born is not a factor.

yes all of them will be notched but i still think the 1st year's COLA works the way i said ( i know it does for fed pensions) so some of the notched people have a bigger notch then others, based on the month they were born

 

[Bikerdude]

and i said that the SS COLA for the 1st year is prorated by the number of months you were collecting SS that 1st year. so 1/12 of zero = 11/12 of zero = zero which is why people born early in the year 1947 are at a bigger disadvantage then those born later in the same year as they lost a bigger 1st year COLA. note: 2010 is a special case for COLAs (hence this discussion) as it is the 1st time the COLA has been 0 since the COLA was tied to the CPI.

That's the whole issue here. The 5.8% cola was set at a time when energy costs had fueled inflation for a part of the year (this means your cost of living went up). Then the bottom dropped out of the economy and we had deflation (this means your cost of living went down). So the people born in 1946 and before got the 5.8% bump and the people born in 1947 get nothing. Even this year the first half had deflation and the last half has had inflation.

yes all of them will be notched but i still think the 1st year's COLA works the way i said ( i know it does for fed pensions) so some of the notched people have a bigger notch then others, based on the month they were born

I don’t know how fed pensions work but my understanding of SS is (and I could be wrong) people born in 1946 turned 62 in 2008 and their first cola year was 2009 and a 5.8% raise. This 5.8% raise was in everyone‘s (those born 1946 and prior ) first check of the year 2009. Yes, those born Jan 1946 had to wait a year to get that cola but also collected 11 more SS checks than someone born in Dec 1946. And the older person is supposed to die sooner so I don’t see any inequity in this process. At least not of the magnitude like the one being hoisted upon the 1947 and most likely 1948 boomers.