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Oldest Boomers Could Lose Over $12,000 Throughout Retirement

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Social Security beneficiaries may feel as if they were wronged when that agency didn’t make a Cost-of-Living-Adjustment this year, but because of a “quirk” in the formula for determining adjustments it’s the oldest boomers who will suffer, the Center for Retirement Research found in a new issue brief. Today’s beneficiaries are already enjoying a higher-than-normal adjustment from 2009. The formula Social Security uses to determine COLAs, combined with higher inflation in 2008, will reduce benefits for boomers born in 1947 by about 2.6 percent. This could cost a typical couple more than $12,000 over the course of their retirement, according to the Center.

The increase in the consumer price index in 2008 led to the highest COLA since 1982, but was followed immediately by a sudden drop in prices, according to Center’s brief. Since the COLA was already approved, today’s beneficiaries were effectively compensated for price increases that didn’t exist. If prices don’t rise as expected, there will be no COLA again in 2011, followed by a 1.4 percent adjustment in 2012. Affected boomers can’t simply put off claiming benefits until after COLAs are reinstated because benefits are “calculated as of age 62 and then inflation-adjusted to the Full Retirement Age using the applicable COLAs for those years,” the Center writes.

One of the solutions suggested in the brief is to index earnings to wages through age 62 instead of 60. The Center acknowledges that this will increase Social Security’s long-term deficit, but could reduce the chances of the 2008 quirk occurring again.

Alternatively, COLAs could be tied to average indexed monthly earnings between ages 60 and 62. This way, boomers born in 1947 would receive the 2009 COLA and compensate for the lack of adjustments in 2010 and 2011.