How the Coronavirus Could Permanently Cut Near-Retirees’ Social Security Benefits

14 Pages Posted: 6 Apr 2020

Date Written: April 3, 2020

Abstract

As a group, retirees are more financially insulated from the economic effects of the COVID-19 pandemic than are most other demographic groups in the United States. Yet due to how the Social Security benefit formula interacts with the sharp economic downturn due to the Coronavirus, some groups of near-retirees are likely to suffer substantial permanent reductions to their Social Security retirement benefits. Assuming a 15 percent decline in the Social Security Administration's measure of economywide average wages in 2020, a middle-income worker born in 1960 could have his annual Social Security benefits in retirement reduced by around 13 percent, with losses over the retirement period in excess of $70,000. Methods of addressing this problem are discussed, including both ad hoc adjustments applying only to affected cohorts, and also permanent changes to the benefit formula to prevent similar benefit “notches” from occurring in the future.

Keywords: retirement, Social Security, Coronavirus, payroll contraction

Suggested Citation

Biggs, Andrew G., How the Coronavirus Could Permanently Cut Near-Retirees’ Social Security Benefits (April 3, 2020). Wharton Pension Research Council Working Paper No. 2020-6, Available at SSRN: https://ssrn.com/abstract=3568128 or http://dx.doi.org/10.2139/ssrn.3568128

Andrew G. Biggs (Contact Author)

American Enterprise Institute ( email )

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Washington, DC 20036
United States
202-862-5841 (Phone)

HOME PAGE: http://www.aei.org

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