COVID-19 Impact on Social Security

According to a recent article written by Bernice Napach, Senior Writer, ThinkAdvisor, the pandemic and subsequent lockdowns have pushed the U.S. economy into a recession, leaving 20 million unemployed Americans who, along with their employers, are no longer contributing taxes into the Social Security Trust Fund on their behalf.
The Wharton School of the University of Pennsylvania published a report in late May that the Old Age, Survivors, and Disability Insurance Trust Fund, which includes two separate trusts,  one for retirees and one for disabled individuals, could be depleted as soon as 2032 because of the pandemic’s impact.
Another concern, pre-retirees born in 1960 face an additional risk , which includes using the top 35 years of a retiree’s earnings, adjusted by an indexing factor based on the Average Wage Index for the year an individual turns 60, which will be 2020 for those born in 1960.
According to Wade Pfau, Director, Retirement Income Certified Professional Program (RICP), American College of Financial Services, job losses and declines in average wages this year due to the pandemic will affect the average wage index, which has risen almost every year since the 1950s, except slightly falling in 2009.
In another study from Wharton, Social Security benefits for those beneficiaries could decline by 13% and “smaller benefit reductions” were possible for those born after 1960 “at least until average economy-wide wages recover to their previously projected levels.” The study assumed a 15% decline in the Social Security Administration’s measure of average wages for 2020.
A fix for Social Security is a challenge in ordinary times, but during the COVID-19 pandemic it may be impossible. According to Heather Schreiber, President and Founder, HLS Retirement Consulting, assuming there is no fix coming for a while, advisors need “to navigate what-if scenarios … [and] have alternative scenarios in place” because of that risk. These scenarios could include a 25% decline in benefits as well as no change when calculating future Social Security benefits in clients’ retirement plans.
Looking longer term, Senator Kent Conrad, who co-chaired the Bipartisan Policy Center Commission on Retirement Security and Personal Savings, said any fix to Social Security needs to involve increasing revenues and reducing benefits. The consensus of the commission was to do more on the revenue side. “We have these big challenges like Social Security and our representatives in Washington are not being sufficiently serious about dealing with these things,” Conrad said. He urges everyone to appeal to their congressional members to work on fixing Social Security.

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