Social Security Benefits Cut A Year Earlier Than Expected Due To Pandemic

Social Security and Medicare, the government’s two largest benefit programs, remain under intense financial pressure with the retirement of millions of baby boomers and a devastating pandemic. Social Security will not be able to pay full benefits from 2034, a year earlier than expected, due to the impact of the crisis.

This is according to a new report from program administrators released Tuesday, which brought forward the date of exhaustion of social security reserves by one year. Medicare is still expected to exhaust its reserves in 2026, the same date as estimated last year.

The pandemic’s blow to the economy – when unemployment soared to nearly 15% – has spread across the country, prompting some older workers to take early retirement, while millions of women with children have left the workforce because of the distant school or lack of daycare. At the same time, fewer adults are choosing to have children, lowering the birth rate. A shrinking workforce can also pose longer-term problems for the social security program, as it relies on a payroll tax to fund benefits.

“The finances of both programs have been significantly affected by the pandemic and the 2020 recession,” the administrators said in the report.

Jobs, incomes, interest rates and economic growth fell in the second quarter of 2020 after the pandemic hit the United States, the report notes.

Despite this, the report added that “given the unprecedented level of uncertainty,” there was no consensus on the long-term effects of the pandemic on the two benefit programs.

Pandemic baby bust

Fewer people are having children amid the pandemic, a trend that will continue until 2023, the report predicts. The birth rate is expected to drop to 1.54 children per woman this year and increase to 1.62 in 2022. By 2023, the rate is expected to return to 1.71 children per woman, the rate it would have been without the birth rate. pandemic, administrators said.

True, the birth rate in the United States has been declining for decades, hit a low of 42 in 2020. This has long-term implications for the labor market and retirement programs, with some demographers describing it as a “crisis”.

Meanwhile, death rates for people over 15 increased by more than 16% last year due to the pandemic and will remain high until 2023, according to the report.

78 cents for every $ 1

When the social security trust fund runs out, the government will be able to pay 78% of planned benefits, according to the report.

Because a reduction in benefits of this magnitude would spark a political outcry, it is likely that Congress would find ways to recoup lost benefits, either by increasing payroll taxes paid by current workers or by increasing government borrowing to cover the deficit.

Government economics experts who prepared the Social Security report said recent increases in inflation mean cost of living adjustment (COLA) for 2022 will approach 6%, a huge jump from the 1.3% of COLA awarded for this year. But beneficiaries will have to wait for this bump because the Social Security Administration only adjusts its payments once a year. This means that the elderly and other social security beneficiaries would not benefit from the increase until January 2022.

The Medicare “Part B” premium for outpatient coverage is expected to increase by $ 10 per month in 2022, reaching $ 158.50 according to the report’s interim assumptions.

The new report, which has been delayed for several months, represents the government’s effort to assess the impact of last year’s pandemic and recession on the financial health of the two major benefit programs.

The US economy lost 22.4 million jobs in March and April 2020 as the pandemic forced businesses to shut down or cut hours and the economy entered recession.

But the recession was brief, and hiring rebounded as economic growth resumed. Employers have restored 16.7 million jobs since April 2020, but the gain still leaves the labor force 5.7 million jobs below what it was before the pandemic.