Study Finds Pandemic May Have Shaved Four Years Off Life of Social Security Trust Fund

Chris Gaetano
Published Date:
Jun 10, 2020
An analysis from Wharton Business School warns that the economic impact of the COVID-19 pandemic may have accelerated the date the Social Security Trust Fund runs dry by about four years.

On the one hand, said the report, the pandemic decreased Social Security expenses in certain ways that, frankly, seem kind of dark. For one, more than 100,000 people so far have died, many of them retired or close to retiring, which has reduced the overall benefits to be paid out from the fund. For another, many people saw cuts to their earnings during the crisis, which has served to reduce both the earning history of beneficiaries as well as the overall Average Wage Index. These changes will limit the amount of initial benefits claimed by recent retirees. Third, and slightly more sanguine, is that lower overall inflation means lower Cost of Living Adjustments.

On the other hand, Social Security has also seen major revenue reductions since the pandemic. The widespread loss of jobs, especially among lower-wage workers, has reduced payroll tax revenues, as well as interest income on the Trust Fund. What's more, while lower inflation has reduced the Cost of Living Adjustments, it has also reduced earnings which, in turn, has further reduced tax revenue.

On the whole, the pandemic has been a decided negative for Social Security, according to the Wharton analysis. In its baseline analysis, it actually pegs the depletion of the Social Security trust fund by 2036, compared to the Social Security Administration's 2035 date. Yet, even assuming a V-shaped (swift and smooth) economic recovery, Wharton estimates that the fund will now run out of money in 2034. It gets even worse in the case of a U-shaped (slow and gradual) economic recovery. In this case, Wharton believes the fund will run out in 2032.

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