Social Security’s Woes Are Accelerating — Blame the Pandemic

retirees worry about Social Security
Photo by Monkey Business Images / Shutterstock.com

You’ve probably heard that Social Security, a major source of many Americans’ retirement income, soon will be on hard times.

True enough. Social Security experts previously have said they expect the program’s trust fund for retirement benefits to be exhausted by 2034 unless the government acts to shore it up.

Now, the story has grown worse: Two nonprofit institutions recently issued new reports showing that the coronavirus pandemic has dug Social Security’s hole deeper. They expect the program’s retirement reserves could be depleted as early as 2031 or 2032.

The gap grows

Before the pandemic, Social Security’s Board of Trustees projected that the reserves for Social Security retirement benefits would be depleted by 2034. (The reserves for disability benefits are good until 2065.)

That doesn’t mean Social Security will entirely collapse in 2034. Rather, it means that payroll taxes will be the retirement program’s only income in 2034. Without reserves to fund any gap, those taxes would cover only 76% of the program’s obligations to Social Security retirement beneficiaries.

Now, though, reports from two research institutions say that the pandemic is causing the Social Security reserves to shrink even faster than expected:

Lower U.S. birth rates

Long before the pandemic, Social Security analysts knew to expect a shortfall in funds.

Stephen C. Goss, chief actuary of the Social Security Administration, wrote in 2010 that the shortfall in funds is due to the aging of our population. It’s not that we’re living longer, however. It’s that the birth rate has fallen in the U.S.

Instead of our earlier average of three children per woman, the U.S. birth rate has dropped to two children per woman. The effect: Relatively fewer people are working and paying payroll taxes to support Social Security.

Government can fix the problem, Goss adds:

“Adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future.”

The pandemic

Now, unemployment from the pandemic is adding to the problem. The Wharton School researchers call out three effects of the pandemic that are making things worse for Social Security:

  • Unemployment. It is especially bad among low-wage workers, the report says. Their removal from the workforce has reduced payroll tax revenue. The longer the recession runs, the worse the problem grows.
  • Low interest rates. We are in a climate of very low interest rates, as the Federal Reserve lowered its benchmark rate to near zero in March. That means Social Security trust funds generate less interest.
  • Low inflation. Our current prolonged low inflation has kept earnings low for workers, further reducing the payroll tax revenue Social Security depends on.

What does this mean for Social Security benefits?

If you are expecting to claim Social Security benefits in the future — and even if you are drawing benefits now — the exhaustion of Social Security’s reserves could well affect your retirement. Exactly how is unknown.

Without government action, current benefits could be reduced.

The good news is this: The problem can be fixed.

But will it be? CNBC writes:

“Fixing that would require cutting benefits, raising taxes or a combination of both.”

Raising taxes would require action from Congress. Some adjustments can be made by changing the rules for paying out benefits.

So far, any reform seems far away. Plenty of ideas for Social Security’s salvation have been floated but none appears to have gained traction.

AARP, for example, has proposed 12 ways for putting the program on its feet, along with pros and cons. Here are just a few of them:

  • Raise the full retirement age. Today’s retirees are eligible for full benefits at around age 66 (depending on your birth date). Full retirement age is set to gradually move to 67 for retirees born in 1960 and sooner. Requiring retirees to wait longer to become eligible for their non-reduced benefit amount could help close the money gap.
  • Increase or eliminate the payroll tax cap. Right now, workers pay Social Security taxes on earnings up to $137,700. Earnings over that ceiling aren’t taxed currently, so taxing more of workers’ take-home pay would bring more taxes to the program.
  • Increase the Social Security payroll tax rate. Taxing workers and employers at a higher rate could shore up the program’s finances.

If you have a favored plan for fixing Social Security, you can work for action by joining an advocacy organization or contacting your elected representatives in Congress.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

7 Things You Should Do Before Claiming Social Security
7 Things You Should Do Before Claiming Social Security

To get the most out of your Social Security retirement benefits, you have to think ahead.

8 Things You Should Never Put in a Microwave
8 Things You Should Never Put in a Microwave

A microwave can be a busy cook’s best friend. But heating certain things in a microwave can cause disaster.

The 10 Best Outdoor Home Upgrades for Your Money
The 10 Best Outdoor Home Upgrades for Your Money

There’s still time this summer to make improvements to the exterior of your home. These offer the best payback.

8 Key Steps to Planning for Retirement as a Couple
8 Key Steps to Planning for Retirement as a Couple

Ready for retirement? Not so fast. You might be surprised at some of the issues that come up for couples when they plan.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

Never Buy These 10 Things on Amazon
Never Buy These 10 Things on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.