Babies From 1960: 2020 Is A Year You’ll Never Forget

The year 2020 is, for many obvious reasons, going to be a year none of us will forget anytime soon. But for those who were born in 1960, even if the coronavirus came nowhere near you personally, 2020 will have a lasting impact on you, regardless.

If you were born in MCMLX (1960), the year 2020 is when you’ll reach age 60. For anyone, this is a momentous occasion. Reaching six decades of age is a wonderful event, opening the passageway to retirement, grandparenting (and great-grandparenting) among many other favored activities. For our purposes in this article, you should know that age 60 is also a very important year for your Social Security benefits. Age 60 is when your wage index is set, which determines many things about your Social Security benefits.

The year 2020, with the severe economic downturn, is going to have a long-lasting impact on you newly-minted sexagenarians, specifically on your Social Security benefits. This is because of the way Social Security benefits are calculated – and the economic figures that are most likely to be written in stone a bit later this year.

I’m not going to go into complete detail on how Social Security benefits are calculated in this post – my primary message here is to help you understand why 2020’s economic results will have such a lasting impact. If you’d like a complete description of how Social Security benefits are calculated, see this article about the Primary Insurance Amount or the AIME, as starting points in your education.

The problem is in the calculation

When Social Security determines your benefit amount, a very complicated set of calculations occur. One portion of that calculation is an averaging of your lifetime (the top 35 years) of earnings. The calculation isn’t a simple average, however – it’s an indexed average, and the indexing year is the year you reach age 60. 

Let that sink in for a bit… I’m guessing that didn’t help much, did it? How about if I work through a simple example to illustrate the problem?

Rather than working with 35 years’ worth of earnings (because that gets unwieldy in a hurry), let’s work with an example of only 5 earnings periods. And I’ll simplify the numbers so it’s a bit easier to grasp. Look at the table below for starters:

Year Income
1 $1,000
2 $1,100
3 $1,250
4 $1,400
5 $1,500

Simple enough. Year 5 is representing the year 2020 for 1960 children, your indexing year. When Social Security determines your benefits, they look at your overall earnings history – and for our example the above brief table will suffice.

Since Social Security is not simply based on what you’ve earned, but rather what you’ve earned relative to the rest of all earners in your age group, we need another column in the table. This column is the Average Wage Index for all people earning in any given year. 

Briefly, the Average Wage Index is determined by totaling all wages earned in the US in a given year, and then dividing that number by the number of people who earned those wages (all who received a W2). Self-employed folks are counted as well, just in a slightly different manner based on their tax returns.

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