COVID-19 has been nothing short of devastating for public health and the economy. The effects of the novel coronavirus will sadly be felt for a long time, both because of the lives lost and the financial effects of the lockdown.

Unfortunately, for some pre-retirees, the monetary consequences of coronavirus will be even greater and long-lasting.

Specifically, anyone who is turning 60 this year could find themselves paying a big price because a quirk in the Social Security benefits formula, which means their lifetime income could be as much as $70,000 smaller due to coronavirus.

Here's why. 

Social security card with money sitting on it.

Image source: Getty Images.

COVID-19 will have huge costs for people turning 60 in 2020

Social Security's benefits formula has a lot of moving parts, and it can be confusing. But, in very simple terms, retirees' benefits are a percentage of their inflation-adjusted average earnings from the 35 years when they earned the most. 

When the Social Security Administration calculates your benefits, it uses the average wages in the year you turned 60 to determine your inflation-adjusted average wage. Then, it uses the same average wage figure to decide what percent of your earnings you receive. 

The big problem is that average wages will be down this year because of COVID-19. They're calculated using a formula that divides total wages people earned by total W-2s issued, and there will be a lot of W-2s due to high labor force participation early in the year, but low total wages due to record unemployment in March and beyond. The sudden shift in unemployment levels from record highs to record lows created an unprecedented situation where the percentage decline in average wages could be in the double digits.

The effects of this will be dramatic. In fact, those unlucky enough to hit their sixth decade in the year of the pandemic could lose more than $70,000, according to Penn Wharton's calculations.

The one bit of good news is that this $70,000 number is based on a worst-case scenario assessment in which average wages were assumed to decline by 15%. The estimates have been revised based on updated employment data, which now suggests a decline of around 9.8% in average wages this year. If that rosier number holds, pre-retirees turning 60 this year would lose out on around $49,000 in lifetime benefits -- an improvement over the $70,000, but still a substantial sum of money. Sadly, though, with COVID-19 cases spiking, the forecast for lost jobs could very well change for the worse once again. 

Will there be a fix for pre-retirees?

The good news is that lawmakers are aware of the problem. A bill has been introduced, The Social Security COVID Correction and Equity Act, that would fix the issue. The problem is that this act also includes other provisions, such as an across-the-board 2% benefits increase and an increase to the minimum benefit, which are unlikely to get majority support. 

And lawmakers didn't take any action the last time average wages fell in 2009 -- although the decline in wages then wasn't nearly as dramatic as this year's fall is expected to be. Still, there's a limited time for politicians to fix the problem before those who turn 60 begin claiming their benefits once eligibility kicks in at 62, and this likely won't be a priority in an election year. 

Sadly, that means those turning 60 this year likely can't count on Washington coming to the rescue. Instead, increasing retirement savings now in preparation for smaller Social Security checks may be their best bet.