Showing posts with label Congress fix Social Security. Show all posts
Showing posts with label Congress fix Social Security. Show all posts

Saturday, July 11, 2020

Covid-19 will Lower Social Security Benefits for People Born in 1960

Congress Needs to Fix Social Security Problems (AARP)
The Covid-19 pandemic is going to hit Baby Boomers hard, even if they never catch the disease.  Some of them saw their 401(k), IRA, and other retirement plans drop in value when the stock market declined earlier this year.  Others wonder where they can safely get a fair return on their savings, because interest rates are so low. A significant number of older workers lost their jobs this year, and some were forced into early retirement, requiring them to take their Social Security benefits years earlier than they planned.  Some have chosen to retire early because they are afraid to go back to work during the pandemic. All these events are likely to affect their retirement income for the rest of their lives.

What most of us did not know is that people who happened to be born in 1960 are are going to be affected more than everyone else.  This is because of the way Social Security benefits are calculated, according to an article in Forbes by Janet Novack, titled "Covid-19 Side Effect: Social Security Retirement Benefits for Boomers born in 1960 Will Take a Big Hit."

How Much Will People Born in 1960 Lose in Benefits?

Forbes reports that, "median income workers born in that year, assuming they claim Social Security benefits at the 'normal' retirement age of 67, will lose $2,511 a year in annual benefits."  This is according to calculations by Andrew Biggs,  an American Enterprise Institute resident scholar, Forbes contributor, and former principal deputy commissioner of the Social Security Administration. "Assuming those average income workers collect benefits for 18 years, the present value of their lost lifetime benefits would be a hefty $45,859," he estimates.  "High earners, with their bigger benefits and longer average lives, would see annual benefits claimed at age 67 cut by $4,142 a year and suffer lifetime losses of $86,177 over 23 years. Low earners would lose $1,571 a year or $24,121 over a 13-year life expectancy, Biggs calculates."

Why Will People Born in 1960 Lose More Benefits than Others?

The reason for this loss is based on a very complicated way that benefits are calculated.  Essentially, they will be harmed as an indirect result of the high number of unemployed people in 2020.  Because of unemployment, the Average Wage Index (AWI) for 2020 is expected to be about 9.8% lower than in recent years, and this will permanently reduce benefits for people born in 1960.  This group is made up of people who are turning 60 years of age in 2020.

Whenever the Average Wage Index (AWI) drops, it permanently lowers the Social Security benefits for people turning 60 during that year. This is because the worker's future benefit amount is based on an average of their 35 highest earning years, adjusted by the AWI for the year they turn 60.  If the AWI is higher than prior years, their benefits will be adjusted higher. If the AWI drops, however, their future benefits will be reduced.  Even if the AWI moves higher again during the years after you turn 60, your benefits will not be adjusted up. The adjustment is only made the year you turn 60.  In 2020, it will apply to people born in 1960.

What Can You Do About the Lowered Social Security Benefits?

The majority of people who will be affected by the lower AWI in 2020 have no idea that it could permanently reduce the amount of Social Security they will receive when they retire.  As a result, there has not been a large outpouring of concern expressed by the affected people to members of Congress.  People who will be harmed, however, need to let their Representatives and Senators know how this adjustment will hurt them, so Congress can correct the problem.  We are fortunate the staff at Forbes have pointed out this problem.  In their article "Covid-19 Side Effect: Social Security Retirement Benefits for Boomers born in 1960 Will Take a Big Hit," they even list the specific steps Congress could take to rectify the problem. Hopefully, they will pay attention.

The Bigger Problem for Current and Future Retirees

This issue for people born in 1960 is part of a bigger problem for retirees, and both senior citizens and Congress will need to address these issues in the coming years.

Individuals are going to have to decide what changes they may need to make to their investments in retirement plans, particularly if their 401(k), IRA and other retirement accounts have suffered significant losses.  In addition, the income they can earn off their savings from dividends and interest may not be as great as they had anticipated when they were doing their financial planning.  Everyone needs to learn everything they can about how Social Security and Medicare work, so they can maximize their personal benefits. 

Congress needs to decide how they are going to address shortfalls in the Social Security and Medicare trust funds, which are currently expected to be gone in little more than a decade.  As part of addressing these problems, they should also address any other glitches they find in the programs, such as the one described above for people who were born in 1960.  Most Americans are dependent on these programs either for all or a substantial portion of their retirement income. As a result, everyone should contact their Senators and Representatives and pressure them to address these problems as soon as possible.

With an election coming up in November, before you vote you may want to contact your current Senators and Representatives to see how they intend to address these problems, and then contact their opponents to learn the approach they favor, should they be elected.  Very few things will affect older Americans more than the future of Social Security and Medicare, so you want to vote carefully.

If you are interested in learning more about Medicare, Social Security, financial planning, common medical problems as we age, where to retire and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional helpful articles.

Disclosure: This blog may contain affiliate links. If you decide to make a purchase from an Amazon ad, I'll make a small commission to support this blog, at no extra cost to you.

You are reading from the blog:

Photo credit: Google Images from AARP