Home / INVESTING / Personal Finance / The Covid downturn may cut Social Security benefits for some. Whether that will be fixed is uncertain

The Covid downturn may cut Social Security benefits for some. Whether that will be fixed is uncertain

A Popular Security Administration office in San Francisco.

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When the Covid-19 pandemic set in last year, one of the unintentional objectives from the deep economic downturn included a potential reduction in Social Security benefits for one group of people.

And now, as the U.S. succinctness is beginning to repair itself, signs point to those benefits perhaps falling less dramatically, if at all.

Average wages in the U.S. cut sharply in 2020 as the economy came to a near halt amid a national shutdown.

Those numbers — known as the as a rule wage index, or AWI — are used to calculate Social Security benefits. The 2020 data applies to people born in 1960, who thinks fitting first be eligible to claim their monthly checks when they turn 62 in 2022. Your sum up monthly benefit is a formula based on the total number of years worked, your wages over that over and over again, the AWI and other criteria, such as the age at which you claim.

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Others who become disabled in 2022 or who die that year, wise triggering benefits for their survivors, would also receive benefits based on the 2020 wages.

The total digit of so-called notch people affected could be 5 million, according to estimates from Rep. John Larson, D-Conn., who has instituted legislation that addresses the issue.

Last year, Social Security Administration Chief Actuary Stephen Goss said during congressional attestation that the AWI could be 5.9% lower than it was in 2019. That in turn could reduce a median earner’s monthly retirement benefits for someone born in 1960 by everywhere $119 per month.

However, recent data from the Congressional Budget Office points to a much less stirring decline. In a January letter, the federal agency estimated that the AWI dropped by just 0.5% from calendar year 2019 to 2020.

The realistic figures will not be known until later this year, the CBO said. Social Security is set to release wage details from the fourth quarter of 2020 in April.

Regardless of whether there’s a decline, Social Security advocates say now is the without surcease for Congress to act to prevent Social Security benefits from inadvertently going down.

“Even if it’s not as bad as we think it’s going to be, and it weight be negligible in terms of a decrease, that doesn’t mean a big drop like this won’t happen in the future,” said Dan Adcock, chairman of government relations and policy at the National Committee to Preserve Social Security and Medicare.

“It might be better now to address it willingly prefer than wait until it happens in the future,” he said.

Historically, the AWI declined for the first time in 2009, prompted by the fiscal crisis, Goss said in his testimony last year. The 1.5% dip did not prompt any action at the time, though the AWI had increased every year from 1951 to 2008.

This metre, however, because early estimates showed a possible bigger drop, Congressional leaders drafted bills to approach devote the problem.

Why should there be a negative adjustment in one year for people turning 60, when there’s no negative order for any other person receiving Social Security?

Charlie Douglas

president of HH Legacy Investments Inc.

That includes a ruder plan put forward by Larson, who serves as Social Security subcommittee chairman on the House Ways and Means Committee. Larson accosted a bill last July, the Social Security COVID-19 Correction and Equity Act, that would fix the “notch” affecting those engendered in 1960, while also increase benefits by 2%, among other changes.

That proposal could be updated til new information from Social Security’s chief actuary.

Meanwhile, Sens. Tim Caine, D-Va., and Bill Cassidy, R-La., presented a bill that would prevent the AWI from ever going negative.

Social Security advocates had been ambitioning that the AWI decline would prompt Congress to act this year, and could even perhaps include larger ups to the program.

However, broader changes may be less likely now, considering President Joe Biden’s current agenda focusing on infrastructure and tax betterment.

If the notch does get addressed, it would more likely be a one-off change in a broader package rather than out-and-out reform, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

Still, others are sanguine Congress will make the fix before any potential benefit changes affect those beneficiaries starting next year.

“I don’t characterize as AWI should go negative,” said Charlie Douglas, president of HH Legacy Investments Inc. in Atlanta.

“Why should there be a negative correcting in one year for people turning 60, when there’s no negative adjustment for any other person receiving Social Deposit?” Douglas said.

Nancy Altman, president of Social Security Works, an advocacy organization that wants to see the blanket program expanded, said the notch was an “action-forcing” event that would have nudged Congress to act if the drop was as sharp as originally projected.

“It still makes sense for them to act before the end of 2021,” Altman said. “It’s both the right custom and the right politics, so I would hope they would do it.”

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