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A new report released Tuesday by the Social Security Administration reveals new estimates of how much the Covid-19 pandemic has affected the program’s already ailing trust funds.
The results show that the funds out of which the program pays benefits have been “severely affected” by both the pandemic and the subsequent recession of 2020.
Now the fund that pays old-age and survivors ‘benefits – the so-called trust fund for old-age and survivors’ insurance – can only pay the full benefits until 2033 as planned. That is a year earlier than forecast last year.
At this point, the program can only pay 76% of these scheduled benefits.
The disability insurance trust fund can meanwhile pay out benefits until 2057 – eight years earlier than estimated in the previous year. At this point, Social Security can pay 91% of these benefits.
Taken together, both trust funds are expected to be able to pay the full benefits as planned by 2034, a year earlier than forecast in the previous year, at which point 78% of the benefits will be due.
In particular, last year’s projections did not take into account the effects of Covid-19.
Although the exhaustion dates have been raised earlier, benefits will continue to be paid once those dates are reached.
Although the cost of living adjustment has been projected to be 3.1% for the next year, that increase is likely to be closer to 6% due to the recent surge in the consumer price index, senior administration officials said. This is in line with the latest estimates.
That would be the highest increase in decades due to recent price hikes in areas like automobiles and energy. The COLA for this year was 1.3%.
While this report is the first to show the impact of the Covid-19 pandemic on social security, the full impact of ongoing inflation is unlikely to become known until next year, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Sustained inflation above 2% could have a significant impact on the program’s finances, he said.
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The publication date of the Social Security Trustees’ annual report, August 31, is also the latest in at least 25 years, Akabas noted. Usually the report comes out in April, although it has been published later in the past.
“It is worrying that we want to keep a close eye on the finances of the program,” said Akabas.
While the report’s findings suggest the program needs to be fixed – either through tax increases, benefit cuts, or a combination of both – it is unlikely that lawmakers will take immediate action, Akabas said.
That’s because estimates for the program aren’t as bleak as projected in the wake of the Covid-19 outbreak last year. Prior to the economic recovery, the bipartisan Policy Center had forecast that the trust fund, which will be used to pay retirement benefits, could expire between 2029 and 2033.
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