Our legal team at Dorcey Law Firm knows that people all over the country are feeling the profound impact that the coronavirus pandemic is having on the U.S. economy. We also recognize that the current economy will likely have a detrimental effect on how Social Security is funded. With unemployment rates skyrocketing, Social Security shortfalls could start sooner than anticipated. Here is why experts believe that the pandemic will substantially deplete funding for Social Security.
How Is Social Security Financed?
The majority of the funding for Social Security retirement benefits is financed through the payroll taxes workers and their employers pay. The money collected from payroll taxes is put into a trust fund that is used to pay benefits for seniors when they retire.
According to a recent report from the trustees of the Social Security trust fund, the balance of the fund will hit zero in the year 2035. One of the reasons for this is that the number of people retiring is greater than the number of people working, which means Social Security paying out more in benefits than it is collecting from taxes. Additionally, seniors are living longer, which means they receive benefits for a longer period of time.
If the Social Security trust fund runs out of money, then retirement benefits would be cut, unless Congress takes action. According to the report’s projections, the fund’s income would be enough to pay retirees 77% of their total benefit.
How Is Unemployment Impacting Social Security?
The pandemic has created record levels of unemployment, and fewer employers and employees are paying payroll taxes. Additionally, more workers who lost their jobs are trying to claim benefits early. On top of all of this trouble, President Trump has signed an executive order that includes the suspension of payroll taxes as a form of economic relief, which will likely have a negative effect on both Social Security and Medicare funds.
Why Experts Are Worried
Some experts predict that the pandemic will move up the depletion of the trust fund by at least two years, to 2033, if payroll taxes to drop by 20% for two years. Other experts argue that the pandemic could have a more substantial effect and might deplete the fund by 2029. According to Social Security Administration Chief Actuary, the pandemic recession is also drastically different from most recessions and that increased applications for benefits will be partially offset by the increased deaths among seniors. While It remains to be seen exactly how the pandemic affects the Social Security trust fund, experts agree that once it ends, Congress needs to take immediate steps to shore up the fund.
Dorcey Law Firm proudly serves elder clients throughout the greater Fort Myers area. Please call us today at (239) 309-2870 if you need advice regarding Social Security or Medicaid planning. Schedule your free consultation today.