The Impact of the COVID-19 Pandemic on Social Security’s Financing and Benefits

The 2020 Report of the Social Security Trustees, released on April 22nd, notes that, using its best-estimate assumptions, the reserves of the combined Old Age Survivors and Disability Insurance (OASDI) Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years. By 2035, however, these combined reserves are projected to be depleted. Unless Congress acts, the projected revenues will be sufficient to pay only 79% of scheduled benefits.

In each annual report, the Trustees make basic assumptions “based on analysis of historical trends, historical conditions, and expected future conditions.” The assumptions for the 2020 Report were selected by the middle of January 2020, prior to the emergence of the COVID-19 pandemic. As a result, the 2020 Trustees Report does not address the likely impact of the pandemic on Trust Funds’ projected year of depletion. It also does not speak to the likely impact on Social Security benefits for those nearing retirement or for future generations of beneficiaries.

How will these projections be affected by the ongoing COVID-19 pandemic? 

The pandemic’s fallout will affect the size of the workforce in covered employment, the level of those workers’ covered earnings, the size and characteristics of both the current and future population that receives benefits, and the level of recipients’ monthly benefit amounts. The pandemic may also drive changes in: retirement-age patterns; disability incidence, recovery, and termination rates; employment and unemployment rates; average wages; inflation and interest rates; and even life expectancies. These are all significant factors in determining Social Security’s future revenues and benefit payments. The 2021 Trustees Report will reflect these health and economic consequences of COVID-19 on Social Security’s financing and benefits.

Among the key questions that Congress and the nation must ask and address are:

• How will Social Security’s future revenues be affected by changes in employment and labor force participation levels, in productivity, and in average earnings?
• To what extent will older workers find it necessary to retire earlier than planned and claim reduced lifetime Social Security retirement benefits due to job loss or illness?
• How will COVID-19 impact benefit amounts for future cohorts, given that benefits are based on lifetime average indexed monthly earnings?

• How will job loss from COVID-19 affect the earnings trajectory of younger generations?
• How will COVID-19 impact disability levels, benefit applications, and awards, which have steeply declined in recent years?

• To what extent will rates of covered self-employment change during and following the pandemic?

• How will COVID-19 impact average life expectancies for different segments of the population, especially lower-income individuals and people of color?

Social Security plays a critical role in the lives of 65 million current beneficiaries and 180 million workers. The economic catastrophe triggered by COVID-19 has shined a spotlight on its importance as a universal contributory social insurance program that guarantees income as an earned right. Unlike relief benefits designed to help families stay afloat during the crisis, Social Security benefit payments are being made without interruption, and eligible beneficiaries received additional cash payments established by the CARES Act with little delay.

The pandemic threatens that stability going forward, however. The Trustees Report noted that “the economic recession of 2007-09 temporarily depressed taxable earnings and increased the number of beneficiaries, which in turn sharply, but temporarily, increased the cost rate of Social Security.” As a result, the projected trust-fund depletion date was advanced eight years, from 2041 to 2033, between the 2008 and 2012 reports. The novel coronavirus-generated recession, however, is already projected to be much more severe than the last Great Recession. It is not yet clear how long lock-downs will continue or what “normal” will look like afterward.

As the nation grapples with the pandemic’s consequences, and as Congress explores policy options to address these challenges, our Academy’s Members and staff will be at the forefront of the national debate. If your work addresses one of the questions above, or if you plan to undertake research in this area and would like to share your work, please contact me at warnone@nasi.org.