The coronavirus has devastated many individual’s health and economic security. There have been 36 million new claims for unemployment benefits since the beginning of the pandemic. It is critical to address how this economic downturn has impacted Social Security’s finances. First, many Americans have lost jobs over the last few months, which has decreased the payroll tax revenues. The payroll tax is critical in funding Social Security; in 2018, the $885 billion of the $1 trillion collected for Social Security came from payroll taxes. The longer the recession lasts, the greater impact it will have.
Second, lower interest rates decrease the income in the Trust Fund, financial accounts in the U.S. Treasury. Lastly, a recession leads to a low inflation rate, which reduces salaries for all workers. This also decreases the Trust Fund’s tax revenues.
A likely impact of this financial situation is a reduced cost-of-living adjustment (COLA), annual increases in Social Security to compensate for inflation. The depletion date of Social Security funds is currently 2036. If the COVID-19 related unemployment rate increases, that date is expected to be brought forward to 2034. A slower recovery could move the depletion date back to 2032.
It is, however, important to dismiss some concerns about Social Security. Those currently receiving monthly Social Security benefits will continue to receive their checks. Also, Social Security is not going bankrupt. Despite issues in Social Security’s current form, this pandemic will not destroy the program. However, the COVID-19 pandemic will have tangible impacts on Social Security for years to come.
Contact Lisa Smith Siegel, Attorney at Law, for a free consultation at (404) 255-9838.