A minimum wage of $ 15 could increase social security benefits by about $ 5,000 a year
On February 18, 2021, a rally was held on February 18, 2021 celebrating the California commissioner’s order to reinstate and compensate workers who went on strike over coronavirus protection.
Lucy Nicholson | Reuters
Some Washington lawmakers are pushing to raise the federal minimum wage to $ 15 an hour to put more money in workers’ pockets.
The increase in wages could ultimately also boost social security benefits.
The current federal minimum wage of $ 7.25 has remained unchanged since 2009.
At the same time, workers will contribute 6.2% to social security wages up to $ 142,800 in 2021. The employers in turn correspond to this contribution of 6.2%. (If you are self-employed, you pay 12.4% of 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, notes in a new report that the proposed increase in the minimum wage could help improve old-age security for these workers.
“When you look at workers who are now making less than $ 15 an hour, it’s a very important reason to update that,” said Nancy Altman, president of Social Security Works.
How a $ 15 minimum wage could increase benefits
Take, for example, a single worker who earns the minimum wage for his entire life.
If they take their Social Security benefits at full retirement age (the age at which they are entitled to 100% of the benefits they have earned) in 2021, they will receive monthly checks for $ 979.80, according to Social Security Works.
Conversely, if they had made $ 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, around one in six workers who earn this pay is over 55 years old.
The raise would also help women and minority workers, the research said. Women make up 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 higher paychecks from such a change.
The wage increase could help some lower-income retirement pensions in the future, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
“For workers who see a wage increase, it will likely increase their future social security benefits and, to some extent, improve their old-age insurance,” Akabas said.
However, some workers could suffer job losses as companies adapt to change. Losing years of income would reduce their social security benefits, he said.
Would a wage increase help social security?
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Social security trust funds were running low before the Covid-19 pandemic. According to the latest pre-pandemic estimates by the Social Security Agency, the trust funds would be depleted by 2035. At this point in time, 79% of the promised benefits would have to be paid.
Subsequent research has shown that Covid-19 can cause these funds to be used up more quickly.
According to research by the Bipartisan Policy Center, the pension fund could be depleted between 2029 and 2033.
Raising the minimum wage to $ 15 an hour could generate more revenue for the program, according to the Social Security Works report. Around 32 million workers could directly or indirectly receive higher wages. This translates into additional revenue of $ 107 billion as the change is gradual, according to the study. Ultimately, this would increase the taxes paid into the program.
“The improvement in funding will make it easier to rebalance the program in the long run,” said Altman.
President Joe Biden’s campaign focused on expanding social security and making the program more compatible, an objective shared by other Democratic lawmakers, Altman said.
“If you raise the $ 15 minimum wage, you will continue to expand benefits and not have to bring in as much money,” she said.
Yet other estimates by the Congressional Budget Office suggest that a higher minimum wage could negligibly affect social security finances, Akabas said.
While the bottom line of social security can improve in the first 10 years, the benefits paid out could ultimately outweigh the additional income they generate.
“Under a program as extensive as Social Security, it is unlikely to have a significant long-term impact on the system’s finances,” Akabas said.
What has to happen in order for a new minimum wage to be reached?
Senator Bernie Sanders, I-Vt., Speaks during an event to introduce the Raise The Wage Act on January 16, 2019 at the U.S. Capitol.
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The plan to raise the minimum wage would not reach $ 15 an hour until 2025, according to current proposals.
The wage increase is part of a bill that the House Democrats want to pass this week.
However, the Senate leadership is also ready to decide whether or not this increase can be included in the Covid 19 aid package as part of the so-called budget equalization process.
That obstacle combined with the potential for challenges from Senator Joe Manchin, DW. Va. And others might make the proposal hard to survive the final cut, Akabas said.
“There are a number of challenges that it would have to overcome in order to be included in legislation in this form,” said Akabas.
Proponents of social security reform like Social Security Works see the increase in the minimum wage as just the beginning of an effort to bring the program back into long-term equilibrium that could happen as early as this year, Altman said.
“If there is any action to be taken this year, it would be good to have the additional income from the $ 15 minimum wage as part of that calculation,” Altman said.