COVID-19 and Social Security: More Ripple Effects
Table of Contents:
- Senior Finances Before COVID-19
- How Will COVID-19 Affect Social Security?
- Is More Relief on the Way?
Senior Finances Before COVID-19
To put it mildly, COVID-19 has taken financial outlooks for many seniors from bad to worse. The Kaiser Family Foundation (KFF) reports that, even before the outbreak, a huge portion of Medicare beneficiaries subsisted on modest incomes and possessed little (if any) savings. In 2019, around half of beneficiaries earned less then $29,500, more than a quarter had no home equity, and 13% had no savings. KFF found large disparities based on age, gender, and, most notably, race. For example, the median savings among white Medicare beneficiaries was $117,800 in 2019. It was just $14,500 for black beneficiaries and $9,650 for hispanic beneficiaries.
KFF concluded that many Medicare beneficiaries could expect to see their retirement resources decline throughout the pandemic. It also raised questions as to whether seniors would be able to manage unexpected costs throughout the crisis.
How Will COVID-19 Affect Social Security?
In early May, the Social Security Administration (SSA) released its annual Trustees Report for 2020. As expected, the report showed that the program’s deficit had increased and predicted that its trust fund would be depleted by 2035. Numerous questions remain, however, because the report was prepared before COVID-19 began to wreak havoc on the American economy.
Experts including Alicia Munnell, the director of Boston College’s Center for Retirement Research, have begun to speculate how the economic crisis will ultimately affect the SSA’s finances and future.
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Perhaps the biggest question on everyone’s mind is whether or not COVID-19 has created a situation that will deplete SSA’s trust fund before 2035. Munnell suggests that this will all depend how much payroll taxes drop and for how long. If they drop by 20% for two years, for example, the fund could run out two years earlier. This would mean that — without action from the government — anyone retiring after the mid-2030s would see their benefits drop by around 20%. That scenario looks more and more likely — a new study from the Wharton School of Business found that the trust fund could run out as soon as 2032.
Cost of Living Adjustment (COLA)
Social Security’s annual COLA is intended to help ensure benefits increase alongside inflation. The next COLA will be calculated by comparing Q3 from this year’s CPI-W with last year’s data. Though the cost of living has not decreased throughout the COVID-19 crisis, earning and spending certainly have. As a result, it’s likely that the CPI-W data will not indicate rising demand and costs for goods and services. If this occurs, it will be just the fourth time since 1975 that the SSA will not introduce an annual COLA.
Social Security benefits are not consistent from person to person. They’re determined by the wages a beneficiary earned throughout their time in the workforce. More specifically, a person’s benefits are based on their 35 highest-earning years. As COVID-19 has ravaged American seniors, it has forced many to leave the workforce and miss out on wages. If they’re forced to retire early, some seniors may have to settle for a lifetime of reduced benefits.
Is More Relief on the Way?
America’s reopening is well underway, but millions of businesses remain closed and millions of Americans (including seniors) are still out of work. Last month, the Democrat-led House passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. While Senate Majority Leader Mitch McConnell has dismissed the legislation as a “laundry list,” it’s still possible that additional relief is incoming. Kevin Hassett, a top economic advisor to President Trump, suggested this week that a second round of stimulus checks is highly likely. Speaking to the Wall Street Journal, he remarked, “the odds of a Phase Four deal are very, very high.”
Seniors are encouraged to continue following hygiene and social distancing guidelines throughout the country’s reopening process.