A $15 minimum wage could boost Social Security benefits by about $5,000 a year
Some Washington lawmakers are pushing to boost the federal wage to $15 per hour to place extra money in workers’ pockets.
The wage bump could also eventually provide a lift to their Social Security benefits.
The current federal wage of $7.25 has stayed where it’s since 2009.
At an equivalent time, workers contribute 6.2% on wages of up to $142,800 in 2021 to Social Security . Employers, in turn, match that 6.2% contribution. (If you’re self-employed, you pay 12.4% in Social Security taxes.)
Social Security Works, an advocacy group for expanding Social Security , finds during a new report that the proposed wage hike could help improve retirement security for those workers.
“If you check out the workers that earn under $15 an hour now, that’s a really strong reason to update it,” said Nancy Altman, president of Social Security Works.
How $15 wage could increase benefits
Take one worker who makes the wage for his or her entire life, for instance .
If they claim their Social Security benefits in 2021 at full retirement age (the age at which they’re eligible to receive 100% of the advantages they earned), they’re going to receive monthly checks of $979.80, consistent with Social Security Works.
In contrast, had they earned $15 per hour, their monthly benefit would be $1,409.60.
That would be an annual increase of $5,157.60, consistent with the report.
Raising the wage would help older workers. About 1 in 6 workers earning that rate of pay are over age 55, consistent with the report.
Here are the pros and cons of a $15 per hour federal wage
Women represent 59% of workers who would enjoy a $15 per hour wage . Meanwhile, 31% of African-American workers and 26% of Latinos would see increased paychecks through such a change.
The pay increase could help some lower-income earners’ retirement benefits within the future, said Shai Akabas, director of policy at the Bipartisan Policy Center.
“For workers who see a raise , that’s likely to extend their future Social Security benefits and improve, to some extent, their retirement security,” Akabas said.
However, some workers could face job losses as businesses suits the change. If they lose years of earnings, that might reduce their Social Security benefits, he said.
Would a wage hike help Social Security?
Social Security’s trust funds were already running low before the Covid-19 pandemic. The Social Security Administration’s most up-to-date pre-pandemic estimates indicated that its trust funds would be depleted in 2035, at which point 79% of promised benefits would be payable.
Raising the wage to $15 per hour could provide more revenue for the program, consistent with the Social Security Works report. About 32 million workers could receive higher wages, either directly or indirectly, leading to additional earnings of $107 billion because the change is phased in, consistent with the research. Ultimately, that might raise the taxes paid into the program.
“By improving the financing, it makes it easier to revive the program to long-range balance,” Altman said.
President Joe Biden’s campaign focused on expanding Social Security and bringing the program to balance, a goal that’s shared by other Democratic lawmakers, Altman noted.
“If they increase the $15 wage , they expand benefits more and that they don’t need to usher in the maximum amount revenue,” she said.
Yet other estimates from the Congressional Budget Office have suggested a better wage may have a negligible effect on Social Security’s finances, Akabas said.
While Social Security’s bottom line could also be helped within the first 10 years, the advantages that are paid out could eventually outpace the extra revenues it’s taking in.
“In the context of a program as large as Social Security , it’s unlikely to possess a big impact on the finances of the system over the end of the day ,” Akabas said.
What must happen for a new minimum wage to pass
The decide to raise the wage wouldn’t reach $15 per hour until 2025, supported current proposals.
The wage bump is a component of a bill House Democrats are looking to pass in the week .
However, Senate leadership is additionally poised to make a decision whether or not that increase is eligible to be included within the Covid-19 relief package under the so-called budget reconciliation process.
Joe Manchin, D-W. Va., et al. could make it difficult for the proposal to survive the ultimate cut, Akabas said.
“There’s a gauntlet of challenges that it might need to get through so as to form it into the legislation during this form,” Akabas said.
“If there’s getting to be action this year, it might be good to possess the additional income that comes from the $15 wage as a part of that calculation,” Altman said.
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