Q & A: December 2021

Will My Social Security Benefits Be Reduced?

Q: I was born in 1960 and I’ve read that my Social Security benefits may be reduced.  Has your group learned anything new about this issue?  I turn 62 next year.

A:  TSCL has been keeping an eye on a potential issue that might mean lower Social Security benefits for people born in 1960 when they file a claim.  There’s good news.  Benefits of people born in 1960 will not be reduced!

The problem has to do with a feature of the Social Security benefit formula — the Average Wage Index (AWI)— which is used to determine the Primary Insurance Amount that individuals receive when they retire.  This feature is sensitive to swings in employment and to going negative in years when there is high unemployment, such as the type we saw last year during the COVID-19 pandemic.  Although rare, this can result in permanently lower Social Security benefits for people who turn 60 in such a year.

In calculating Social Security benefits the Social Security Administration first takes the workers earnings and converts past earnings to average wage indexed values in order to represent the value of those earnings near the time of eligibility.  On July 17 of 2020 the Chief Actuary of Social Security first expressed a warning to Members of Congress that people born in 1960 and who first turn 62 in 2022 may be impacted by cuts as much as 10 percent below the amount projected by the Social Security Trustees.

But the economy recovered more quickly than the Chief Actuary initially feared. The Social Security Administration recently posted the Average Wage Index that applies to 2020 and will be used to calculate the benefits of people born in 1960.  The index rose 2.8% from 2019 to 2020 — very good news for those with birthdays in 1960.

While that group escaped benefit cuts, there’s still work to be done to protect future retirees, from reductions if they have the misfortune of turning 60 in a year of excessively high unemployment.  TSCL supports legislation to fix the problem —“The Social Security COVID Correction and Equity Act,” introduced by Representative John Larson (CT-1), and the “Protecting Benefits for Retirees Act,” introduced by Senators Tim Kaine (VA) and Bill Cassidy (LA) in the last session of Congress.