The coronavirus pandemic has had a major impact on just about every aspect of life and that includes the Social Security trust fund.
While little has changed for current retirees, at least for now, those 10 to 15 years out from retirement could see a big negative impact on their future Social Security benefits.
First, let’s review how the Social Security program works.
85 cents of every Social Security tax dollar workers in 2020 pay is funneled into a trust fund that pays monthly benefits to current retirees and their families (and to surviving spouses and children of workers who have died). And, about 15 cents goes to a trust fund that pays benefits to people with disabilities and their families.
From these trust funds, the Social Security Administration also pays the management costs of running the programs. Of each Social Security tax dollar that workers pay, the Administration spends less than one penny to run the programs.
Workers who pay taxes accrue Social Security credits. This year, every $1,410 in earnings earns workers one credit, up to four credits per calendar year. Most workers need 40 credits (or 10 years of working) to qualify for Social Security benefits.
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How does coronavirus change things for the program?
Fewer workers (due to pandemic-related job loss) mean less funding for Social Security. This, plus the stunning number of Baby Boomers who are turning 65—which is considered the standard retirement age—daily (some estimates put this figure at 10,000 per day) AND the fact that people are living longer overall—which means they’re collecting benefits longer—is the perfect storm for Social Security.
Under the best circumstances, funding for Social Security benefits is expected to run out by 2035. But, coronavirus has erased all job gains in the past 11 years. Unless Congress hikes taxes or comes up with another solution to cover the shortfall, the program could run out of money sooner. One research group at Wharton Business School at the University of Pennsylvania says it could run out as early as 2032.
Social Security was never intended to cover all expenses in retirement. That’s why it’s important to save as much as possible during your working years.
Nervous about how your Social Security benefits might be affected by coronavirus? Talk to one of our experienced financial advisors. Click here to make a free, no-obligation virtual appointment.