Washington, D.C. — A new analysis from the Center for American Progress finds that more than 4 million individuals who become eligible for Social Security in 2022 will likely have much lower lifetime Social Security benefits than previously expected due to the economic fallout of the COVID-19 pandemic.
Due to the pandemic, average wages in the economy in 2020 will very likely fall below the level anticipated only a number of months ago. Because initial Social Security benefits are determined by a formula that depends, in part, on the growth of average wages in the economy two years earlier, Social Security benefits for those who become eligible to retire in 2022 would be significantly less than what was anticipated only months ago.
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 phenomenon, known as a benefit notch, would have long-lasting consequences. It will lower retirement benefits for every year going forward for the 3 million workers who will turn 62 in 2022 and reduce benefits every year for the 1 million people who will qualify for Social Security disabled-worker benefits that year.
The chief actuary of the Social Security Administration predicts an average earner born in 1960 could lose $1,428 per year in inflation-adjusted dollars for the rest of their life, and above-average earners could lose even more each year. The benefit notch would also affect the spouses and dependent family members of beneficiaries as well as some individuals drawing Social Security survivors’ benefits.
Congress has the ability to rectify the problem any time between now and 2022, but there are strong arguments for doing so quickly. People decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives.
“If Congress does not act, more than 4 million people and their families will very likely suffer a dramatic reduction in their lifetime benefits,” said Alan Cohen, senior fellow at the Center for American Progress and author of the analysis. “All that is needed to fix the problem is a one-time legislative change, but because this issue is affecting future retirees’ ability to plan, change needs to be made as soon as possible.”
For more information or to speak to an expert, contact Julia Cusick at gro.ssergorpnacirema@kcisucj.
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