Q. My neighbor told me that I'm a "notch baby". He said that I get lower Social Security benefits because I was born between 1917 and 1926. What is the notch? Can we do anything about it?
A. The notch was a cut in Social Security benefits. Even though it happened 22+ years ago (January 1, 1979) it is still controversial and misunderstood.
In 1977, Congress made several important changes in Social Security. Most of the changes went into effect in 1979. Among those changes was a complete re-writing of the rules used to compute benefits. The new rules resulted-as intended-in smaller benefit checks for future Social Security recipients.
The first retirees to feel the pinch were born in 1917: They turned 62 in 1979. But, contrary to popular belief, the notch does not affect just people born from 1917 to 1926. Benefits did not return to the old levels for people born after 1926. In fact, the notch means significantly lower Social Security benefits for everyone who was born after January 1, 1917. Everyone. That includes today's workers, their children, and their grandchildren.
Cutting benefits was deemed necessary because the Social Security system was on the brink of financial ruin. The crisis was caused by errors in the 1972 law that provides automatic annual cost-of-living adjustments for Social Security beneficiaries. The errors increased benefits above the levels Congress intended, and above the levels that taxpayers can afford to pay. The notch corrected those errors.
The notch first became controversial in 1982 when new retirees began to notice that their Social Security benefits were significantly lower -- up to $100 per month lower -- than their older neighbors'. Almost immediately, self-styled "notch babies" started lobbying for compensation. Over the years, Republican and Democratic Congresses have considered dozens of notch bills. None of them passed. In fact, no notch bill has ever moved out of committee to the floor of the House of Representatives or the Senate for a vote.
The National Academy of Social Insurance is a nonprofit, nonpartisan center for research and education on social security issues. In their 1988 report on the notch, NASI stated that "no reasonable basis exists for reducing the notch by raising the benefits of those born [after 1916] who are receiving reasonable amounts-and what Congress intended".
The General Accounting Office, the agency responsible for auditing the federal government, warns that increasing Social Security benefits to pre-notch levels would jeopardize the retirement of future generations.
In 1995, Congress paid for a comprehensive and, they hope, final study of the notch. The last commission on the notch agreed with all the previous studies: the notch is not the problem; the notch corrected the problem.