How a $ 15 minimum wage could increase Social Security benefits

Some Washington lawmakers are pushing to raise the federal minimum wage to $ 15 an hour to put more money in the pockets of workers.

Rising wages could also potentially give their Social Security benefits a boost.

The current federal minimum wage of $ 7.25 has remained at the same level since 2009.

At the same time, workers contribute 6.2% of wages of up to $ 142,800 in 2021 to social security. Employers, in turn, match this contribution of 6.2%. (If you are self-employed, you pay 12.4% social security taxes.)

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Many Americans, especially families, cannot live on a minimum wage of $ 15

Social Security Works, an advocacy group for expanding Social Security, finds in a new report that the proposed minimum wage hike could help improve retirement security for these workers.

“If you look at workers making less than $ 15 an hour now, that’s a really good reason to update it,” said Nancy Altman, president of Social Security Works.

Take the example of a single worker who earns minimum wage for their entire life.

If they claim their Social Security benefits in 2021 at full retirement age (the age at which they are eligible to receive 100% of the benefits they have earned), they will receive monthly checks of 979, $ 80, according to Social Security Works.

On the other hand, if they earned $ 15 an hour, their monthly benefit would be $ 1,409.60.

That would be an annual increase of $ 5,157.60, according to the report.

Raising the minimum wage would help older workers. According to the report, about 1 in 6 workers earning this rate of pay is over the age of 55.

Rising wages would also help women and minority workers, the research finds. Women represent 59% of workers who would benefit from a minimum wage of $ 15 an hour. Meanwhile, 31% of African American workers and 26% of Latinos would see their paychecks increase thanks to such a change.

The salary increase could help the retirement benefits of some low-income earners in the future, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

“For workers who see an increase in pay, it will likely increase their future social security benefits and improve their retirement security to some extent,” Akabas said.

However, some workers could experience job losses as companies adjust to change. If they lose years of income, it would reduce their social security benefits, he said.

Social Security trust funds were already low before the Covid-19 pandemic. Social security administration most recent prepandemic estimates said its trust funds would be depleted in 2035, when 79% of promised benefits would be payable.

Subsequent research has shown that Covid-19 can cause these funds to deplete faster.

The retirement trust fund could run out between 2029 and 2033, according to research from the Bipartisan Policy Center.

Raising the minimum wage to $ 15 an hour could provide more income for the program, according to the Social Security Works report. About 32 million workers could receive higher wages, directly or indirectly, resulting in additional revenue of $ 107 billion as the change is implemented, the research shows. Ultimately, this would increase the taxes paid into the program.

“By improving funding, it is easier to restore balance to the program over the long term,” Altman said.

President Joe Biden’s campaign has focused on expanding Social Security and balancing the program, a goal shared by other Democratic lawmakers, Altman noted.

“If they raise the minimum wage by $ 15, they expand benefits more and they don’t have to generate that much income,” she said.

Yet other Congressional Budget Office estimates have suggested that a higher minimum wage could have a negligible effect on Social Security finances, Akabas said.

While Social Security’s financial results can be helped in the first 10 years, the benefits that are paid out could eventually exceed the additional income it generates.

“In the context of a program as large as Social Security, it is unlikely to have a significant impact on system finances in the long run,” Akabas said.

The plan to raise the minimum wage would not reach $ 15 an hour until 2025, based on current proposals.

The wage increase is part of an invoice House Democrats are looking to be successful this week.

However, the Senate leadership is also set to decide whether or not this increase can be included in the Covid-19 relief plan as part of the budget reconciliation process.

This hurdle, combined with the potential for challenges from Sen. Joe Manchin, DW. Va., And others could make it difficult for the proposal to survive the final cup, Akabas said.

“There is a glove of challenges he would have to overcome to make it legislation in this form,” Akabas said.

Supporters of Social Security reform like the Social Security Works see the minimum wage hike as just the start of efforts to restore the program to long-term equilibrium that could come as early as this year, Altman said.

“If there is an action this year, it would be good to have the extra income that comes from the minimum wage of $ 15 as part of that calculation,” Altman said.