The new decade hasn’t exactly gone according to plan for most Americans. A year that began with promise has been completely derailed by the proliferation of the coronavirus disease 2019 (COVID-19).As of a little more than a week ago, there were in excess of 2.2 million confirmed cases of this respiratory illness worldwide, with more than 153,000 deaths attributed to COVID-19. But what’s been most telling is that 31% of all global coronavirus cases have originated in the U.S., with New York state having more confirmations by itself than any other country in the world.

An assortment of cash bills laid atop and partially covering a U.S. Treasury check.

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An unprecedented disease has called for historic action, which is why Congress passed, and President Trump signed, the Coronavirus Aid, Relief, and Economic Stimulus (CARES) Act into law on March 27. This $2.2 trillion relief package is the largest federal stimulus in history. It sets aside $500 billion in loans to distressed industries, about $349 billion for small business loans, $260 billion to expand the unemployment program, and $300 billion for direct stimulus payments.

Yes, Social Security beneficiaries can receive a stimulus check, with a few catches

As you can imagine, the vast majority of the American public is honed in this last part — the $300 billion in stimulus checks that’ve begun making their way to the public via direct deposit and, eventually, paper checks.

But what you may not realize is that these “Economic Impact Payments,” as they’re officially known, aren’t just for working Americans. Many of the 64 million-plus Social Security beneficiaries that are currently receiving a monthly payout will be eligible to receive a coronavirus relief check.

There had been some concern leading up to the passage of the CARES Act that retired workers receiving a Social Security stipend each month might be excluded. For 34% of current retired workers, Social Security represents 90% to 100% of their monthly income. In instances where a beneficaries’ modified adjusted gross income plus one-half benefits comes in below $25,000, or $32,000 for couples filing jointly, there’s no federal tax liability on their Social Security benefits. Thus, there’s no reason for these folks to file a federal tax return. Without a federal tax filing on record for 2018 or 2019, there was the possibility that seniors, and other Social Security recipients, would be on the outside looking in when they payouts were disbursed.

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However, language in the CARES Act specifically allows all Social Security recipients the right to receive a stimulus check, assuming they also meet other criteria, as well. The Internal Revenue Service can simply reference beneficiaries’ payout data from 2019 if they haven’t filed a tax return, and can direct deposit an up-to-$1,200 stimulus check to the same bank account that their monthly benefit posts to.

As noted, there are some criteria that need to be met in order to be eligible for an Economic Impact Payment as a Social Security beneficiary. For example, you can’t be claimed as a dependent on anyone else’s federal tax return. You’ll also need to have an adjusted gross income (AGI) below $75,000 as a single filer, $150,000 as a couple filing jointly, or $112,500 as head-of-household, to receive the maximum stimulus check. Partial payouts are also possible up to $99,000 in AGI, $198,000 in AGI, and $136,500 in AGI, respectively, for single filers, couples filing jointly, and head-of-household.

The average beneficiary will see a 7% “raise” in 2020, but COLA continues to be anemic

How will a $1,200 stimulus check affect Social Security recipients, you ask?

For the average beneficiary, who takes home $1,387.26 a month, according to the Social Security Administration in March 2020, it works out to a 7.2% annual “raise” in 2020. Extrapolating this monthly payment out over the course of a year means the average Social Security beneficiary will net closer to $17,850 this year, rather than $16,650.

That’s pretty great news considering that the coronavirus pandemic has lowered the trailing 12-month inflation rate for most spending categories, with the exception of medical care services, which carried an unadjusted increase of 5.5% over the trailing year, through March 2020.

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But Social Security beneficiaries also need to realize that this “raise” is likely a one-time event, and that, beginning again in 2021, their anemic cost-of-living adjustments (COLA) will continue to erode the purchasing power of their Social Security dollars over time.

Without getting too far into the weeds, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which has been Social Security’s inflationary tether since 1975, doesn’t do a very good job of tracking the inflationary data that matters to senior citizens (who happen to make up more than 80% of all Social Security beneficiaries). Since the CPI-W tracks the spending habits of urban and clerical workers, who are often not seniors or receiving a Social Security benefit, important expenditures to seniors, such as medical care and housing, are underweighted by the CPI-W. Meanwhile, lesser important costs to seniors, such as apparel and education, tends to bear higher weightings in the CPI-W calculation. The result being that Social Security’s COLA rarely keeps up with the real inflation that seniors are facing.

Over the past decade, retired workers have seen the purchasing power of their Social Security dollars decline by 18%, with an even steeper 33% decline since the year 2000. Even with an up-to-$1,200 stimulus check headed their way, Social Security’s retired workers remain well behind the eight-ball in terms of keeping up with inflation.

Author: Sean Williams (TMFUltraLong)
Date: Apr 26, 2020
Publication: The Motley Fool