Coronavirus continues to confound policy makers in its impact on public health, social structure and the economy. Now supporters of Social Security are beginning to understand its unexpected impact on millions of older workers

Simply put, anyone who is 60 years old this year can face a reduction in life-long Social Security benefits because of the uniqueness in the program benefits formula that makes them vulnerable to economic decline this year.

That will almost certainly happen unless Congress takes action by implementing a one-time fix. Damage can be felt somewhere between 3 million and 5 million workers and their families.

Without repairs, preferably in the next coronavirus recovery bill, “Social Security Benefits will be significantly lower for workers aged 60 years and will be eligible for early retirement benefits by 2022,” writes Paul Van de Water of the Center for Budget and Priorities Policy in the latest siren calls about this situation. “Those who qualify for disability or benefit young survivors in 2022 will also see lower benefits.”

The earliest notice of the problem came from conservative commentator Andrew Biggs, a former Social Security official, who spoke warning in the Wall Street Journal and a paper published by Wharton School of the University of Pennsylvania in early May.

When he calculated, the mistake could make pensioners lose money with an average lifetime income of around $ 3,900 per year, until the end of their days. That would be equivalent to more than 20% of today’s average annual Social Security benefits.

Based on his own assumptions, Biggs puts a gap of about 13% of what is projected by the 2019 Social Security trusteeship report for workers born in 1960, who will turn 60 this year. Whatever it was, it was a pretty big hit.

Biggs carries out valuable services by sounding the alarm, even though the proposed improvement will not be supported by many in the Social Security advocacy community. More about that in a moment.

The problem is basically technical. Here’s a direct explanation (I hope).

Social Security benefits are calculated based on an employee’s average career income, resulting in what is known as an indexed average monthly income. As Van de Water explained, the income of workers up to the age of 59 is then adjusted to account for economic wage growth, using the “average wage index.”

Under normal conditions, this is the right way to assign benefits: It adjusts them higher when average wages rise, and because wages tend to rise faster than prices about 1% a year over time, which allows benefits to reflect economic progress long-term .

The problem arises if overall wages fall sharply. That is likely to occur as a result of months of economic lockdown caused by coronaviruses and residual layoffs and leave during the end of the year. Van de Water proposed a reduction in average wages of at least 5% in 2020; Biggs based his calculation on a 15% reduction.

As Biggs explains succinctly, referring to the year when workers were 60 years old, “the decline in the national average wage in that year reduced the size of the Social Security index of all past income. This results in a calculation of lower career average income, and hence lower Social Security benefits. “Deficiencies affect the benefits of workers for life.

This situation is clearly unfair to anyone who is 60 years old. So what to do?

Biggs proposes the abolition of the wage index completely, replacing the inflation index (that is, based on price increases rather than wage increases) plus some other formula adjustments.

That is unpleasant for Social Security supporters, who value wage indexing because it helps maintain a balance between benefits and therefore the relevance of Social Security for newly retired workers, and because wage errors are largely a one-time problem stemming from the extraordinary conditions at the moment.

Van de Water and other Social Security experts propose a simpler solution: Request Congressional mandate that changes in the wage index never produce lower benefits.

There are two precedents for that. The maximum annual income that is subject to Social Security tax pay is never down even when wages go down (this year, $ 137,700, up from $ 132,900 last year).

And adjusting the cost of living with annual benefits can never produce benefits that are lower than one year to the next, even if the consumer price index on which they base falls.

That’s the best choice for Congress, and that should be included in the next coronavirus assistance bill so that this problem is not ignored. The retirement benefits of millions of Americans depend on balance.

Social Security, as observed by Franklin Roosevelt at the time of its creation, was designed to help Americans deal with “danger and life change.”

The phrase correctly defines the current economic landscape. As Van de Water wrote, “People should not suffer a large reduction in their Social Security benefits just because they are 60 years old, become disabled, or experience losing a breadwinner around the beginning of a deep recession.”