In 2022, millions of Americans who turned 62 became eligible to start receiving Social Security benefits. VERIFY viewer Kevin recently emailed our team about claims he saw that suggest people born in 1960 might face a permanent reduction in their Social Security benefits. That speculation was widely reported in 2020 and 2021.
“Will people born in 1960 earn less Social Security due to a quirk in the payment formula?” Kevin asked.
Will people born in 1960 earn less in Social Security benefits because of a quirk in the payment formula?
No, people born in 1960 won’t earn less in Social Security benefits because of a quirk in the payment formula. If the pandemic had caused average wages in 2020 to drop, Social Security benefits would have been adjusted downward as well. However, wages actually increased in 2020.
WHAT WE FOUND
When there's a severe downturn in the economy, it can negatively impact Social Security benefits for some recipients born in a specific year. While rare, this has happened once before — in 2009 during the Great Recession when wages dropped 1.5 percent. This means people born in 1949 (who turned 60 in 2009) earn fewer Social Security benefits than those born in other years for the rest of their lives.
Some analysts anticipated that the negative economic impact of the start of the coronavirus pandemic in 2020 could have a similar effect on Social Security recipients born in 1960.
Social Security benefits are typically calculated using average indexed monthly earnings (AIME). This average is calculated using up to 35 years of a worker's highest earnings adjusted for changes in the economy over time, according to the Social Security Administration and AARP. The Social Security Administration applies a formula to this average to calculate the primary insurance amount (PIA), which is the basis for the benefits that are paid to an individual.
The formula used to calculate the PIA reflects changes in general wage levels, as measured by the national average wage index (AWI), which the Social Security Administration uses to track wage growth among American workers as a measure of inflation.
When a person turns 60, two years before they become eligible for benefits, the federal government looks at all of their annual earnings. The Social Security Administration adjusts each year for wage inflation based on the average income growth of all Americans according to the AWI. This ensures the calculations reflect changes over time in the cost of living.
In a July 2020 testimony before a Congressional subcommittee, Stephen C. Goss, chief actuary of the Social Security Administration, warned that people born in 1960 faced a nearly 10 percent reduction in their Social Security benefits because of the way the AWI is calculated.
“In an economic recession, when many workers might work for less than the entire year, the AWI will tend to increase less than in a typical year, and can even decline,” Goss said.
Fortunately, the economy recovered quicker than Goss’ initial projections. In fact, wages in 2020 actually increased by nearly 3 percent, meaning people who were born in 1960 (who became eligible in 2022) will not face a permanent reduction in their Social Security benefits.
“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,” Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, wrote in a December 2021 newsletter.
Some groups have called on Congress to step in if wages are adjusted down again. Lawmakers declined to do so in 2009. But in 2020, legislation was introduced in the House and Senate that attempted to prevent an unintended drop in Social Security benefits in the future. Neither bill was brought up for a vote.