Social Security’s trust fund was expected to be depleted by 2035, according to the latest report, but the COVID-19 pandemic has resulted in millions of Americans losing their job and people are not paying Social Security taxes when they don’t work so it is expected that the depletion of the trust fund may happen sooner. This doesn’t mean Social Security will completely run out of money in 2035, but it is a point where it may be difficult to pay 100 percent of benefits owed.
There are many other things to stress out about these days than something that won’t impact anyone for at least the next decade, but it is important to know that the COVID-19 pandemic is not doing any favors for future retirees. Alicia Munnell, the director for the Center for Retirement Research at Boston College University wrote a recent article for MarketWatch indicating the trust fund might be depleted earlier than projected. Below is part of the article Munnell wrote addressing the issue.
Program finances. Let me start with the biggest question. Will the weak economy accelerate the exhaustion date of Social Security’s trust fund? In 2021, the cost of Social Security benefits is expected to exceed the revenues coming in. Yet no one is concerned about benefits not being paid in full next year, because Social Security has a pile of assets in its trust fund to cover the gap between cost and income until 2035. But once that trust fund is depleted, revenues are sufficient to cover only 79% of promised benefits initially, declining to 73% by the end of the projection period. If the economic collapse causes payroll taxes to drop by, say, 20% for two years, the depletion date would move up by about two years. Thus, the basic message remains unchanged: As soon as we get the immediate issue of the pandemic off our plate, it would be a good idea to take steps to ensure that people retiring in the mid-2030s and later do not see a 20% to 25% cut in benefits.
