Covid-19 Impact on Social Security Finances may not be as Bad as Expected
The impact of the Covid-19 pandemic on the financial health of the Social Security Administration may not be as bad as previously feared.
The Social Security Administration Chief Actuary recently testified at a House Ways and Means Committee hearing, that the outlook for the agency is much more optimistic than was earlier believed. In April, the agency forecasted that there would be a 15 percent reduction in the earnings of the Social Security Administration as a result of deductions in payroll taxes and other earnings. Now, the agency believes that the actual reduction is likely to be much closer to 10%.
According to the Actuary, the effect on Social Security earnings is not likely to be as great, because of the number of deaths that have already occurred, and are expected to occur as a result of the pandemic. The current economic crisis has something in common with earlier recessions in that there is likely to be more unemployment, leading to lower earnings in the form of payroll taxes into the Social Security Administration. However, unlike other recessions, there are likely to be a large numbers of deaths caused by Covid-19, resulting in fewer benefit payouts for the agency.
However, this forecast is based on the assumption that the pandemic will die out by the end of the year, or at least by early 2021. If economic recovery is impacted well into 2021, then the Social Security Administration expects to tap into its Disability Insurance Trust Fund, as well as the Old Age and Survivors Insurance Funds, depleting those already-strained funds further.