The Social Security system has helped mitigate the effects of the pandemic on older persons but the system is feeling a financial impact that has shortened the time remaining before the program’s trust fund is exhausted, a report from the Center for Retirement Research says.
“For retirees and people with disabilities, Social Security has continued to send out benefit payments each month. In addition, with an early retirement age of 62, the program has served as a safety net for older workers who are forced to leave the labor market. Thus, Social Security has provided a steady source of support during the pandemic,” it said.
However, it said that as many older workers lost their jobs and “continue to face difficulties in finding new jobs,” many are starting to draw benefits earlier than they would have otherwise. That has worsened the long-known issue of exhausting the trust fund, which now is projected to occur in 2034 rather than 2035 as projected before.
“Once the fund’s assets are depleted, Social Security can pay only 75-80 percent of promised benefits,” it says, and paying the full benefits that have been promised on a pay as you go basis would require an immediate payroll tax increase of 3.2 percent, split between employees and employers.
In addition, mortality is up and fertility and immigration are down, all of which have long-term impacts, it said.
On other retirement-related issues, it said that the pandemic has had relatively little impact on employer-sponsored retirement savings plans, since the stock markets have recovered from the steep dive that occurred initially last spring. Nor were there significant jumps in early withdrawals from such plans or cutbacks in employer matching contributions as there were in the Great Recession of a decade ago, it said.
However, interest rates remain low for fixed-income investments and many state and local government defined benefit plans are under-funded, it added.