The downturn in Covid could cut social security benefits for some. It is uncertain whether this will be remedied
A San Francisco Social Security Administration office.
When the Covid-19 pandemic hit last year, one of the unintended effects of the deep economic downturn was a possible reduction in social security benefits for a group of people.
And now that the U.S. economy is starting to repair itself, signs are suggesting that these benefits may, if at all, decline less dramatically.
Average wages in the US fell sharply in 2020 as the economy nearly stalled due to a national shutdown.
These numbers – known as the Average Wage Index or AWI – are used to calculate social security benefits. The data for 2020 applies to people who were born in 1960 and cannot claim their monthly checks until they are 62 years old in 2022. Your total monthly performance is a formula based on the total number of years worked, your wages during this time, the AWI and other criteria, such as: B. the age at which you make a claim.
More from Personal Finance:
Long-distance Covid drivers can suffer financial setbacks as they struggle with persistent symptoms
About $ 1,400 in stimulus checks went to people who didn’t need them
The Small Business Administration is set to triple the Covid loan amounts for businesses
Others who become disabled in 2022 or die this year, providing benefits for their survivors, would also receive benefits based on 2020 wages.
According to estimates by Rep. John Larson, D-Conn., Who has introduced legislation to address the issue, the total number of so-called notch people affected could be 5 million.
Last year Stephen Goss, Chief Actuary of the Social Security Administration, said during a congressional testimony that the AWI could be 5.9% lower than in 2019. This, in turn, could reduce a median earner’s monthly retirement pension for someone born in 1960 by about Cut $ 119 per month.
However, recent data from the Congressional Budget Office suggests a less dramatic decline. In a letter from January, the federal authority estimated that the AWI only fell by 0.5% from calendar year 2019 to 2020.
The actual numbers won’t be revealed until later this year, the CBO said. Social security is expected to publish wage data for the fourth quarter of 2020 in April.
Whether or not there is a decline, Social Security advocates say it is time for Congress to act to prevent Social Security benefits from accidentally falling.
“While it’s not as bad as we think it is, and it might be negligible in terms of a decline, that doesn’t mean a big decline like this one won’t happen in the future,” said Dan Adcock, director of government relations and -Politics in the National Committee for the Maintenance of Social Security and Medical Care.
“It might be better to bring it up now than to wait for it to happen in the future,” he said.
Historically, the AWI fell for the first time in 2009, due to the financial crisis, Goss said in his testimonial last year. The decrease of 1.5% did not lead to any measures at this point in time, although the AWI had increased every year from 1951 to 2008.
This time, however, with early estimates showing a potentially larger decline, the leaders of Congress drafted bills to address the problem.
Why should there be a negative adjustment for people turning 60 in a year when there is no negative adjustment for anyone else receiving Social Security?
President of HH Legacy Investments Inc.
This includes a broader plan from Larson, who chairs the Social Security Subcommittee on the House Ways and Means Committee. Larson proposed a bill last July, the COVID-19 Social Security Correction and Justice Act, which aims to fix the “notch” for those born in 1960, including increasing benefits by 2%.
This proposal could be updated pending new information from the principal social security actuary.
Meanwhile, Sens. Tim Caine, D-Va., And Bill Cassidy, R-La., Have introduced bill to prevent the AWI from ever going negative.
Social security advocates had hoped that the decline in the AWI would prompt Congress to act this year, and perhaps even incorporate major corrections into the program.
However, given President Joe Biden’s current agenda focused on infrastructure and tax reforms, larger changes are less likely right now.
If the notch is addressed, it would be more of a one-time change to a broader package than major reform, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Still others are confident that Congress will find the solution before potential performance changes affect these beneficiaries from next year onwards.
“I don’t think AWI should go negative,” said Charlie Douglas, president of HH Legacy Investments Inc. in Atlanta.
“Why should there be a negative adjustment for people turning 60 in a year when there is no negative adjustment for anyone else receiving Social Security?” Said Douglas.
Nancy Altman, president of Social Security Works, an advocacy group that wants the overall program to expand, said the notch was an “action-boosting” event that would have spurred Congress to act if the decline had been as severe as originally projected.
“It still makes sense to act before the end of 2021,” Altman said. “It’s both the right policy and the right policy so I would hope they would.”