Based on recent research, the increase in unemployment during the COVID-19 pandemic is significantly higher than the increase during the period between 2007-2009, also known as the Great Recession. Which leads to this question: How will the coronavirus affect Social Security benefits? According to USA Today, there are signs that Social Security benefit cuts might happen sooner than you hope.
On the surface, there are two things you can look at to make an intelligent guess as to how the current climate might affect the Social Security program.
According to the CDC, the highest rates for death due to the coronavirus belong to the 65-years-old-and-above age bracket, the demographic that has the most to benefit from the program. If more people die in that age range, fewer people claim benefits, which might mean there would be more Social Security funds available for those senior citizens who are living.
You can also take a look at the effect of the coronavirus on jobs. In order to function, the Social Security Administration (SSA) mainly uses payroll taxes—also known as the Old-Age, Survivors, and Disability Insurance (OASDI) tax—paid by the currently employed to cover the benefits of today’s retirees.
Americans who have lost their jobs during the pandemic clearly have no wages to be taxed, so there’s a significantly lower amount of funds going into the program. Additionally, unemployed workers who belong to an older age bracket may be forced into retirement and decide to claim Social Security benefits earlier than they expected. These two scenarios make the possibility of sooner benefit cuts a lot more probable.
The future of Social Security depends on how the unemployment and death rates will fluctuate and whether COVID-19 will cause a long-term recession. According to a Penn Wharton Budget Model projection, given the assumption that tax rates remained the same and the coronavirus crisis never happened, the Social Security trust funds would run out in 2036. If the pandemic were to cause a recession, the projection changes to 2034 if the country recovers quickly and 2032 if it recovers slowly.
It also depends on what steps the government takes in the next 10 years to shore up Social Security. President Trump’s constant push for a payroll tax cut is hardly helpful to those most in need at this time—while it offers workers more take-home pay, it also reduces contributions to federal programs that are important in the age of quarantine, such as Medicare and Social Security. Also, a payroll tax cut obviously wouldn’t help anybody who has lost their job and is no longer on a payroll.
Although the Social Security program is, as of now, not on the brink and current beneficiaries are not at risk of losing their payouts, the wisest course of action is to prepare for the worst-case scenario. If you are lucky enough to still have a job, increasing your retirement fund contributions seems like a good place to start, as well as considering delaying retirement to increase your Social Security payouts later on. According to SimpleWise’s July 2020 Retirement Confidence Index, one in five Americans are now planning to delay claiming their retirement benefits.