Question: Perhaps you can help me and other Social Security retirees who were born in certain years known as the "notch" years (I remember the years 1917-1921). These are called the "notch" years because a bump or notch appears on the life expectancy curve for Social Security payments. The "notch" payments need to be adjusted upwards (payment benefits are too low for certain years) in amounts that vary from about 5% to 25%.
This question may not qualify as one of general interest, but some indication of such things as amount of adjustment and time period covered would be greatly appreciated by us "notch people." The local Social Security office can only indicate their awareness of such a condition and will only say it is being corrected.--B.F.
Answer: It's certainly of "general interest" to anyone born in that critical five-year period. Whether it's ever going to be "corrected," however, is, frankly, very iffy.
Here's the general situation: Back in 1977 the Social Security program was in deep, deep trouble--like running out of money. One of the reasons, Congress concluded, was that the benefit formula then in use was based on a computation that took into account both the average growth in wages and price increases.
"It was overadjusting for inflation," according to Joe Giglio, public affairs specialist for the local Social Security office. "And, in the future, we were going to have a situation where a lot of the people retiring would have gotten benefits far in excess of their pre-retirement earnings. If they had continued under that formula the whole system would have gotten completely out of hand."
The solution? Change the formula for computing benefits using only the wage figure. But how do you change horses in midstream? Where and when do you put the formula into force? And how do you make the transition as painless as possible?
"One way," Giglio said, "would have been to go back and cut the benefits for everyone. But that's a pretty sensitive area--once they've been receiving higher benefits."
What came out of this didn't really please anyone--a five-year transitional period for those born from 1917 to 1921, during which their benefits were computed both ways, and they received the higher benefit. But, for those born beginning in 1922, the new, lower computation would prevail. And, unfortunately, the lower benefit level was pegged intentionally low by Congress to offset some of the unintended rise in benefits that came about under the old system.
In retrospect, a glitch of some sort was inevitable and, sure enough, a worker reaching age 65 in December, 1981 (with his benefits computed under the old system) received substantially higher benefits than another worker with comparable earnings who hit age 65 just a month later, in January, '82, and who had his benefits computed under the new system.
How much higher? Well, Social Security estimates that if they both had average earnings, the worker under the old computation system would have received monthly benefits of $624 versus benefits of $535--$89 less--for the worker retiring just a month later under the new system.
Another glitch came about because--under both the old and the new system of computation--all earnings by a worker after age 61 are used in refiguring his benefits if a higher benefit results. But under the old system these earnings are computed at their nominal value in the year they were earned. Under the new system, these post-age-61 earnings lose a lot of their impact because the worker's entire wage history is updated in terms of wage levels prevailing shortly before age 62--a bookkeeping technique that "waters down" those post-61 earnings considerably.
Those who advocate "fixing" this notch situation in some way take the position that the reduction of the pre-1977 congressional action was phased in entirely too fast. Social Security, however, argues that the difference between the old and the new benefits was more severe than anyone expected because inflation flared up much greater than anticipated and distorted it to a degree that no one could have foreseen.
Yes, there are continuing efforts to "do something about the notch." One piece of legislation, H.R. 1917, was introduced April 2, 1985, by Rep. Edward R. Roybal (D-Calif.), chairman of the House Select Committee on Aging, and 98 co-sponsors, which would replace the current five-year transitional provisions with a modified version of the old formula and which would not be phased in until after the turn of the century.
Unfortunately, Social Security Administration actuaries estimate the cost of the Roybal plan at about $82 billion--and that's only through 1990. With the current deficit hanging over the country, the prospects of getting a new $82-billion appropriation through Congress is, charitably, dim bordering on faint.