About 4 million people who turn age 61 this year are in for a deep hit to their Social Security benefits when they retire. The initial retirement benefits of these individuals may be permanently reduced by about 9.1%, according to an estimate by Social Security’s Chief Actuary. Without quick remedial action from Congress, the retirement benefits of people born in 1960 would be lower than the benefits of people with identical earnings and retirement histories who were born just one year prior to them (1959). This is due to a flaw in the Social Security benefit formula.
The situation is caused by a drop in the average wage index (AWI) which is used in the Social Security benefit formula. Normally, wages tend to go up year over year. But in 2020, the COVID-19 recession and sudden high unemployment may have caused the index to plummet. This type of benefit reduction is known as a “notch” and these people are the “1960 Notch Baby Boomers.”
Without legislation to remedy this flaw in the benefit formula, the reduction to the Social Security retirement benefits of these 4 million people would be permanent. Assuming that benefits would be reduced by 9.1%, a calculation for TSCL indicates that a 62 - year old with middle-earnings who retired in 2020 would typically expect a benefit of $1,565 at full retirement age, but now would only receive $1,423 instead. Over the course of a 25-year retirement, or by the time these individuals reach 87, the total loss of retirement income from expected Social Security benefits would be more than $55,000.
Congress has the ability to prevent these reductions before they take effect, but the questions is — will it do so? Legislation proposed in 2020 would protect the retirement benefits of individuals who were born in 1960 from declining. But TSCL is concerned that some Members of Congress may balk at taking timely action. To prevent lawmakers from looking the other way, they need to hear from as many constituents (of every age) as possible to take action to protect retirement benefits. “These are benefit cuts that are directly caused by COVID-19 and should be addressed by emergency legislation, or in a comprehensive bill that would correct this problem. In addition, Social Security benefits still need to be boosted for all retirees,” says TSCL’s Executive Director, Shannon Benton.
What can you do? Share this story. If you or someone you know was born in 1960, contact your Members of Congress! Let your Representative and Senators know that you are concerned about the permanent 9% cut that would affect the retirement benefits of everyone born in 1960. We can make Social Security more equitable, but it takes working together to make that happen. Contact Congress here: https://seniorsleague.org/contact-congress/.
Sources: “Hearing On The Effects Of COVID-19 On Social Security,” Testimony of Stephen C. Goss, Chief Actuary, Social Security Administration, House Ways and Means Subcommittee on Social Security, July 17, 2020. “Biden Has Promised To Reform Social Security — Some Changes Could Come As Soon As This Year,” Lorie Konish, CNBC, January 23, 2021.