Perhaps one of the lesser-known mechanics of Social Security is that benefit amounts are primarily driven by a measure called the Average Wage Index (AWI).
In short, the AWI is a measure of a variety of national wage data to ensure that benefit amounts actually reflect what recipients need to receive to remain on par with the cost of living and the general national earning level. In 2018, that number was just above $50,000, but this year, it’s going to look much different.
Why 2020’s AWI Will Be Different
As many as five million eligible Americans could be affected by the sharp, pandemic-related drop in wages between 2019 and 2020. In 2009, the AWI declined for the first time, by 1.5%, as a result of the financial crisis at the end of the first decade of the 21st century. It resulted in a drop in benefit levels in 2011, but nothing was done to fix it.
This year, the chief actuary for the Social Security Administration says that the AWI could be as much as 5.9% lower this year as a result of significant job losses and decline in wages for some who remain employed.
What This Means for Social Security
People who were born in 1960 or who become disabled or die in 2022 stand to see significantly lower benefits due to the adjustment in the 2020 SWI. In 2022, those born in 1960 will turn 62, the first year of potential eligibility to claim benefits.
This could mean a drop of as much as $119 per month in benefits for a median earner, according to the linked CNBC story above. How broad the effects will be of this problem are yet to be known as the rest of 2020’s economic uncertainty still looms large overhead.
A bill has been introduced in Congress to fix this issue with funding support to fill the gap, but it’s unclear when it would make it through the channels of legislation.
At Bevill & Bevill, we work hard to stay on top of the latest development in Social Security funding to guide our clients as they work through denials and other related issues here in Alabama. Call us today at (205) 221-4646 to learn more and schedule your free consultation.