Social Security Benefits for Workers Turning 60 in 2020 Will Very Likely Drop Due to the Coronavirus Pandemic

As a result of the COVID-19 pandemic, about 3 million retired workers who turn 60 years old in 2020 will very likely have much lower lifetime Social Security benefits than previously expected. Without legislative changes, the average earner stands to lose nearly $1,500 per year for the rest of their life. Fortunately, there is a simple legislative change—explored in detail below—that would fix these problems without lowering the benefits of any other cohort of retirees. Chairman of the U.S. House Ways and Means Social Security Subcommittee, Rep. John Larson (D-CT), has introduced such legislation*—and Congress should fix this situation as soon as possible.

The problem: The economic toll from the pandemic will very likely affect Social Security benefits

The initial retirement benefits that Social Security beneficiaries receive in the first year of retirement are determined by a formula that depends, in part, on the growth of average wages in the economy. Due to the economic fallout from the COVID-19 pandemic, the key measure of average wages—the average wage index (AWI)—is very likely to decline in 2020. As a result, the initial retirement benefits for those who are first eligible to receive benefits in 2022—when they reach the age of 62—would be significantly less than what was anticipated only months ago, before the pandemic began to exact its economic toll. The effect is very likely to be so significant that workers turning 62 in 2022 would receive initial retirement benefits that are less than those of workers who were born a year earlier and who had essentially the same earnings history. This incongruity is what Social Security experts call a benefit notch. Such a notch would be unfair to the beneficiaries who turn 60 in 2020 and first become eligible to retire in 2022 because benefits are normally expected to grow for each successive cohort of retirees. Moreover, the benefit reduction and notch would have long-lasting consequences, as they not only would affect benefits in the first year of one’s retirement but also lower them for every year going forward, as annual benefits are determined by adjusting the initial level for inflation. Continue reading.