The Coronavirus May Speed up the Shortfall in Social Security, by Todd Carmack

The CBO (Congressional Budget Office) always reflects a pessimistic outlook regarding benefits. However, the latest report the office released on the solvency of the Social Security program hit differently. The report estimates that there may not be enough funds to pay full benefits for the “old age” part of Social Security by 2031. This is different from what was contained in the Social Security Trustees’ annual report, which said that would not happen until 2034.

Why is There a Difference in Predictions?

The coronavirus pandemic and the accompanying economic crisis – that’s why. The report from the Social Security Trustees was created before the COVID-19 era and was released in the pandemic’s early period.

On the other hand, the CBO report was created after the coronavirus’s economic impact became evident and was released in early September. It considered three major items that came as a consequence of the economic downturn we are facing today.

1. Lower Payroll Taxes

Payroll taxes fund the Social Security program, and fewer payroll taxes means there’s less money available to run the program. Payroll taxes are taken out of employees’ salaries in Social Security-covered employment (this is about 94% of the workforce).

Unemployed people don’t pay payroll taxes, and with the rise in unemployment all through the year, fewer people are paying the taxes and less money is going to Social Security. 

2. Increased Social Security Applications

Several individuals are within Social Security age but haven’t started making withdrawals because they were still working. Due to the coronavirus’s effect, some of these individuals lost their jobs and applied for the program – meaning that more money will be coming from Social Security than before. 

3. Low-Interest Rates

The Federal Reserve has decided to keep interest rates low for a long time due to the economic downturn. This will affect the Social Security program’s income since the funds for the program are invested in treasuries. With the treasury rate now lower than it was months ago, there’s less money going back to Social Security.

So Why is Social Security Talked About so Much? 

Because it’s one of the three primary sources of income for FERS retirees. If Social Security turns out to pay less than it’s expected, retirees should be able to cover the difference with other income sources like the TSP.

From what we’ve seen so far, if nothing is done to shore up funds to Social Security, benefits may be cut by 20% or thereabouts. The U.S Congress can come to the program’s aid, but as we’ve seen, they seem more interested in endless political debates.

Rather than anticipate the intervention of Congress, retirees should do whatever they can to boost their TSP savings so they’ll have something to fall back on in the worst-case scenario. Look through your budget and find ways to reduce spending and set aside more for retirement. 

Ensure you contribute up to 5% to earn the full employer match. If you’re already maxing out your contributions, consider keeping additional funds in a taxable or IRA account. This way, you’ll be more prepared if Congress fails to show up with a solution for Social Security.

Contact Information:
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Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

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