Herald & Lantern 2 November '83

Social Security

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‘Notch ’ to Lessen Benefits for Some

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Many people to Cape May County who are approaching retirement have recently become aware of the ••notch” problem, Del Brooks, Social Security Manager in Wildwood, said recently. The so-called notch came about because of the 1977 Social Security Amendments. The effect of the notch is that person who reached 65 before 1982 receives higher Social Security benefits than a person who reaches 65 after 1981 even though both persons had identical lifetime earnings, Brooks said. Before the 1977 laws, benefits were increasing both as the cost of living increased and covered wages increased. This was the unintended effect of making cost-of-living benefits increases automatic and was causing severe financial problems for Social Security. THE 1977 law changed this. The law provided that before a person reached 62, benefit rates would only go up as covered earnings rose. After 62, a person would get the benefit of cost-of-living increases. The result is that a person who became 65 in 1981 had his or her benefit rate figured under the old law and a person who became 65 in 1982 and later had his or her benefit figured under the new law and received less. One reason benefit rates are different under the two systems is that under the old system, earnings were counted at their actual value. Because maximum covered earnings had been increasing rapidly in recent years—from $17,700 in 1978 to $29,700 in 1981these earnings had a big impact on benefit rates. UNDER THE new system, however, actual earnings for years before a person reached 61 are adjusted for increases in average earnings over the years. As a result, recent years of higher earnings do not have as great an impact on benefit rates, Brooks said. To help people who were approaching retirement at the time the 1977 law was

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passed, a transitional period was given. During the transition, a modified version of the old law was used. One of the features of this method is that earnings after the year a person reached 61 did not count for benefits.

The transitional method provided higher benefits for a few years and applied to workers who reached 62 after 1978 and before 1984. Now, however, the new method results in higher benefits for almost everyone. And, it uses earnings up to the year the

person applies for benefits. Another reason for the lower benefits is that one of the intentions of the 1977 law was to slightly lower overall benefits to remove some of the unintended rise in benefits that occurred under the old system.

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