If you were born in 1960, it turns out you had bad timing. A portion of the Social Security benefit formula is based on national average wages for each cohort of 60-year-old workers. It’s not yet certain how long double-digit unemployment rates will last, but it’s a safe bet that record job losses will bring down average wages this year. That means a middle-income worker who was born in 1960 could see her Social Security benefits reduced in retirement by 14 percent, or $3,900 a year, according to a study from the University of Pennsylvania’s Wharton School.
Older workers, regardless of their birth year, are suddenly having a harder time. In most recessions, they have been largely shielded from job losses. That isn’t the case in 2020. “This time, the data show older workers are getting hit harder than those who are 25 to 54,” says Alicia Munnell, director of the Center for Retirement Research at Boston College.
Workers nearing retirement age have been buffeted by numerous factors. Millions who haven’t lost their jobs have still seen hours or wages cut. Their retirement accounts have been dragged down by the market, or been drained to pay for more immediate expenses. Dozens of companies have suspended their 401(k) match programs, affecting more than 400,000 workers. The Social Security trust fund, already projected to run dry by 2035, could be depleted earlier due to the spike in unemployment, which means fewer workers and employers are paying payroll taxes.
As is common during recessions, older individuals struggling now are applying for Social Security early, before reaching the full retirement age. “The bad thing that’s coming out of this is that people are going to claim their Social Security benefits early,” Munnell says. “They’re going to be living on reduced monthly income for the rest of their lives.”
Read the full article about the COVID-19 pandemic and retirement by Alan Greenblatt at The Aspen Institute.
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