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Coronavirus pandemic may cause Social Security benefits to dry up even sooner, new model suggests

Social Security is getting weaker: Social Security benefits became subject to federal income tax after a 1983 overhaul. Also, the age to receive benefits will increase to age 67 for Americans born after 1959. This means current benefits will be weakened by taxes, and we'll begin receiving them later in life.
Social Security is getting weaker: Social Security benefits became subject to federal income tax after a 1983 overhaul. Also, the age to receive benefits will increase to age 67 for Americans born after 1959. This means current benefits will be weakened by taxes, and we'll begin receiving them later in life. (iStock/zimmytws)

HOUSTON – The Social Security Administration (SSA) recently released updated data outlining when it believes the trust funds — which help ensure there’s enough money to pay full benefits — will run dry.

The projected year remains 2035. The same day the Social Security Board of Trustees released that information, the Bipartisan Policy Center (BPC) released its own projections. Accounting for the impact of the COVID-19 pandemic, which the SSA did not figure into its projection, the BPC estimated that the Social Security trusts could be out of money by 2029.

RELATED: Social Security and Medicare funds at risk even before virus

Whichever year it ends up being, that year is coming soon and if nothing changes, there will come a time when Social Security recipients’ benefits will have to be cut.

The SSA wrote, “At that time, there would be sufficient income coming in to pay 79 percent of scheduled benefits.”

Congress will have to make changes to fill that 21% gap between promised benefits and what the program can afford.

How COVID-19 could be draining the pot?

The BPC points to three main reasons.

  • Unemployment: With more than 30 million people out of work due to the coronavirus pandemic, a huge chunk of the population is paying less into Social Security.
  • Economic recession: The economic recession means retirement income is down too and that plays a role, according to the BPC. “Social Security recipients pay taxes on their benefits if their incomes exceed $25,000 ($32,000 for a couple filing jointly). A deep recession means fewer beneficiaries will meet these thresholds — through, for example, investment income — so their benefits won’t be taxed.” 
  • Interest rates: The Social Security Trust funds hold bonds that are tied to interest rates. Lower interest rates mean lower bond yields and less dollars flowing into the trusts.

The SSA does not have a magic solution for the problem. It suggests Congress will have to respond with some balance of increased payroll taxes and reductions in benefits.

“Further modifications of the program are a certainty as the Congress continues to evolve and shape this program, reflecting the desires of each new generation,” wrote the SSA in 2010.

However, Congress is running out of time to make those modifications.

“If policymakers fail to address Social Security’s financial imbalance soon,” wrote the BPC, “they will have to pursue some combination of sharply increasing taxes, drastically cutting benefits, or financing promised benefits through general revenues—turning Social Security from a self-financing insurance program into a perennial drain on tax revenues that are sorely needed elsewhere.”

See the latest projection from the Social Security Administration below: