After more than a year of COVID-19 on our shores, the economic consequences of the pandemic may threaten a potential reduction in Social Security benefits.
The average wage index (AWI), which is used to calculate Social Security benefits and an individual’s total monthly benefit payment, is a component derived from the number of years worked, wages over those years worked, the AWI, and age at the time of claiming Social Security benefits.
The wage index data from 2020 might be permanently applied to people who are now in the age range of 61 edging toward early retirement in the coming year with plans to begin collecting SSI at age 62.
Others who become permanently disabled in 2022 or who die that year would also trigger their benefits to be at this level.
In July 2020, Stephen Goss, Social Security Administration Chief Actuary, testified before Congress and revealed that the AWI for 2020 could dip 5.9% lower than from 2019.
If this holds, it would equate to a reduction in monthly retirement benefits by nearly $120 per month for an estimate of 5 million people in this group.
In a recent letter from January 2021, the Congressional Budget Office estimated that the real drop in AWI from 2019 to 2020 was only 0.5%, which is much better. More updated wage data for the fourth quarter of 2020 is set to be released in April.
Whether the decline is 5.9% or less than 1%, many advocates are pushing Members of Congress to ensure that Social Security benefits remain stable and safe from any unintended drop.
Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare, said, “Even if it’s not as bad as we think it’s going to be, and it might be negligible in terms of a decrease, that doesn’t mean a big drop like this won’t happen in the future.”
In response to the pandemic, several bills were proposed last summer to Congress, including the Social Security COVID-19 Correction and Equity Act, which would fix any drop in monthly benefits for people born in 1960 and increase overall benefits by 2%.
Another bill proposed by Sens. Tim Kaine, D-Va., and Bill Cassidy, R-La., the Protecting Benefits for Retirees Act, wants to keep the AWI from ever going negative.
As those of you born around 1960 race toward retirement, the song “Walk Don’t Run” by The Ventures is so very timely on this subject.
Social Security advocates want to see more expansion to the program and remain steadfast in prodding Congress to act for 64 million beneficiaries.