Ask the Advisor: June 2021

What Is Congress Doing to Prevent My Benefits From Being Reduced?

Q:  I read your story about a potential Social Security benefit cut affecting people who were born in 1960.  Has Congress taken any action yet to correct this?

A:  The COVID-19 recession of 2020 may potentially result in permanent benefit cuts for about 4 million people who were born in 1960 but, so far, Congress has not taken any action to prevent these cuts.  The problem is caused by a glitch in the way Social Security benefits are calculated.  The amount of your initial retirement benefit is tied to your highest 35 years of earnings.  But before those years are selected, the Social Security Administration adjusts your earnings based on the average wage index (AWI) to account for changes to the value of wages in the past to a current measure.

This index is susceptible to variations due to changes in employment, including drops in years when there is drastically high unemployment.  The AWI is determined on the ratio of wages paid in the year (in this case 2020) to the total number of workers in the year.  The number of workers includes all workers who were employed at any time during the year, regardless of the amount of time they were employed.  The amount of wages in any given year are not reported until the following calendar year.  Thus, the AWI for 2020 will not be known until late this year, and it would not be used for Social Security benefit calculation prior to 2022.

In July of 2020, the Chief Actuary of the Social Security Administration Stephen Goss estimated that people born in 1960 who become newly eligible for retirement or disability benefits in 2022 would a receive a benefit that’s about 9.1 percent lower than expected.  The reduction would be permanent and it would also affect the spouse and dependent benefit based on the account of someone born in 1960.  TSCL estimates that people retiring with an average benefit of $1,565 in 2022 would lose more than $55,000 in Social Security income over a 25-year retirement.

Legislation negating the drop in the AWI would be needed to avoid the benefit reduction.   One approach discussed last year would not allow the AWI to decline from one year to the next for benefit computation and other purposes.  Instead the highest AWI level determined for any prior year would be used.

TSCL supports legislation that would prevent reductions in the AWI.  What do you think Congress should do?  Please take TSCL’s 2021 Retirement Survey at