Changes to the Consumer Price Index (CPI) are making your Cost-of-Living Adjustment (COLA) grow more slowly (see article "COLAs Cut by CPI Changes" at http://www.tscl.org/NewContent/101406.asp).  Technical revisions to the CPI can cut COLAs without even the benefit of legislation.  But revising the CPI formula has serious financial implications for seniors.  A study of the effect of such revisions on COLAs was conducted by Richard W. Johnson of the Urban Institute.  That study found that the erosion in Social Security benefits would lead to an increase in the number of persons falling below the poverty line, especially as the effects compound over time.  In addition the report said, "The financial pain of reductions in Social Security COLAs would fall disproportionately on the elderly near the bottom of the income distribution." (1)

This describes the plight of many Notch Babies (seniors born during the Notch years from 1917 through 1926), especially those who have little other income except Social Security. These seniors now hover close to the federal poverty line, even those who began retirement with an average benefit.  Because their starting benefits were lower than other retirees with similar work and earnings histories, the dollar amount of their annual COLA increase is correspondingly lower. 

Notch Babies have been retired long enough to be affected by virtually all the revisions made to the CPI since 1995 thus experiencing the full effects of compounding which continues to build over time.

TSCL is concerned that the continuing CPI changes will force increasing numbers of seniors-especially Notch Babies-into poverty.  If, as predicted, health care costs continue to rise at a far faster rate than the general rate of inflation, lower-income seniors will face a grim future where essential health care becomes unaffordable and their ability to purchase other essentials is compromised. 

"The Notch Fairness Act" would provide Notch Babies born from 1917 through 1926 their choice of higher monthly benefit or a lump-sum of $5,000 payable over four years.  This is a modest amount compared to what Notch Babies may experience in COLA cuts over time, but so needed to help with costly essentials like prescription drugs.  This is an election year in which the entire House and one third of the Senate will be asking for your vote.  We urge you to contact your Members of Congress and ask them to co-sponsor "The Notch Fairness Act." 

(1) Source: "The Distributional Implications of Reduction in Social Security COLAs," Richard W. Johnson, The Urban Institute, 2000.

March 2002