Social Security serves as a critical source of income for millions of retired seniors, but the program is fraught with wacky rules that don’t always work to the benefit of beneficiaries. One of those rules is that the average wage rate in the year that seniors turn 60 is used, combined with other factors, such as lifetime earnings, to determine what their monthly benefits will be.
Generally speaking, the average national salary increases from year to year. But this year, that will not be the case. Thanks to the COVID-19 pandemic, millions of Americans are out of work and could stay that way for the rest of the year, so average wages tend to decrease substantially. As a result, seniors turning 60 in 2020 will be online for a much lower retirement benefit than those turning 60 just a year ago. That is, unless legislators intervene.
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Will those over 60 save a reduction in benefits?
A couple of bills have been entered to adjust the formula used to calculate Social Security benefits, saving today’s over-60s from a lower monthly lifetime benefit. The Social Security Correction and Equity Act COVID seeks to ensure that the average wage rate used to determine Social Security benefits cannot fall below the previous year’s level. If approved, those turning 60 this year will not lose a large amount of lifetime income due to the bad time. The Retiree Benefits Protection Act has a similar objective.
But lawmakers will have to act quickly to push through these bills. Although seniors are not entitled to their full monthly benefit based on their earnings history until they reach full retirement age, which is 66, 67 or somewhere in between, depending on the year of birth, they They are you are allowed to claim benefits starting at age 62. Doing so results in a reduction in benefits (usually a permanent one), but it also gives older people access to that money sooner. In fact, 62 years old is actually the most popular age to enroll in benefits despite the reduction it causes. As such, some of today’s over-60s may try to enroll in Social Security starting in 2022, and if the above formula isn’t corrected by then, they may end up with no luck.
Of course, this is not the first time that the average salary index has decreased nationally. The same thing happened in 2009 due to the effects of the Great Recession. But that decline was much less extreme than the unemployment crisis caused by COVID-19, so legislators were not motivated to act accordingly. This time, today’s 60-year-olds may be looking for Social Security benefits that are 5.9% lower than those for workers who turned 60 last year, so the extreme nature of that discrepancy, thankfully, has pushed lawmakers to act. Hopefully those who advocate for today’s 60 years will be successful, because if not, many people struggle financially in retirement because of their own fault.
