COVID-19 Brings End of Social Security Trust Fund Even Closer

Apr 24, 2020 / Amanda Chase, Horsesmouth Assistant Editor

Prior to the economic downturn—or collapse—that we’re now experiencing, the trust fund was projected to run out of money by 2035. This has, practically overnight, gotten worse. Why? Because some 22 million Americans have lost their jobs in the last four weeks. This means there are a lot fewer—millions fewer—people paying those payroll taxes into the Social Security system.

And on top of a lot less money coming in, a lot more will soon be going out. That’s because people who are now out of work and eligible to draw benefits may soon do so, out of sheer economic need.

This one-two punch could mean the depletion of the trust fund sooner than 2035. How soon? Perhaps two years earlier—2033— estimates one of the country’s leading experts on Social Security, Alicia H. Munnell, the director of the Center for Retirement Research at Boston College.

History offers some guidance here. During the near-economic collapse of 2008, which was accompanied by a devastating 57% drop in the S&P 500 SPX, -1.28% from its 2007 peak, millions of Americans saw their investment portfolios evaporate. The one-two punch then— millions of jobs lost and older Americans opting to take Social Security earlier than they otherwise might have—caused the trust fund’s estimated depletion date to fall four years, Munnell says, from 2041 to 2037. It then drifted lower to last year’s estimate of 2035. Now, it could drop another two years.

What happens when the trust fund runs out? Since Social Security is financed by payroll taxes, the Social Security Trustees estimated last year that benefits would have to be cut about 25%. And that was before the current crisis.

You can find the full article at MarketWatch.

 

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