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COVID-19 Raises Concerns About the Life Expectancy of Social Security Trust Funds

Posted by Susan Katzen | Jun 22, 2020 | 0 Comments

The COVID-19 pandemic and the resulting economic recession have sparked fresh concerns about the long-term solvency of Social Security's trust funds. 

The Social Security system is funded by payroll taxes, split equally between employers and their workers. Historically, Social Security collected more in payroll taxes than it paid out in benefits, and the additional funds were stored in trust funds. Congress set aside one trust fund for Social Security retirement benefits, known as the Old-Age and Survivors Insurance (OASI) Trust Fund, and a separate trust fund for Social Security Disability Insurance (SSDI) benefits, known as the Disability Insurance (DI) Trust Fund.

Social Security retirement benefit payouts have risen in recent years, primarily due to the general aging of the population, without a corresponding increase in payroll taxes. SSDI benefits traditionally increase sharply during economic downturns, as was the case during the 2008 recession.

Soon, the trust funds will need to begin drawing down their reserves to ensure that benefits continue to be paid in full. Once the trust funds are drained, benefits would have to be reduced unless Congress acts.

In April 2020, the Social Security Administration (SSA) released its annual Social Security Trustees Report. The report projected that the OASI Trust Fund will run out in 2035, at which point benefits would have to be cut by at least 20 percent. It also projected that the DI Trust Fund will be solvent until 2065.

The Trustees Report, however, specifically stated that its projections were not accounting for the expected negative impacts of COVID-19 and the resulting economic recession.

 Non-governmental agencies have released their own projections, which attempt to account for the attempted negative effects of the economic recession. On the same day that the Trustees Report was released, the Bipartisan Policy Center (BPC) issued its own report, which found that the OASI Trust Fund could run out as early as 2029. Even more concerning, the DI Trust Fund could be depleted as early as 2024, or even 2022. 

In late May, the Wharton School at the University of Pennsylvania released its own report, finding that  the OASI Trust Fund could be empty by 2032. Wharton did not make projections for the DI Trust Fund.

Congress can act to shore up Social Security before the trust funds run dry and cuts are necessary. Some ideas include eliminating the cap on income subject to tax. Right now, workers only pay Social Security tax on the first $137,700 of income (in 2020). That amount can be increased, so that higher-earning workers pay more in taxes. The Social Security tax or the retirement age could also be increased.

Social Security is immensely popular and lawmakers are unlikely to allow steep benefit cuts to take place. The last time the program was in financial trouble and received a major overhaul was in 1983, when President Ronald Reagan and congressional Democrats struck a deal to increase taxes and gradually raise the retirement age from 65 to 67.

If you have questions about this topic or anything else when it comes to planning for your family, please contact us so we can help make sure you're protected. 714-374-2244

About the Author

Susan Katzen

"I firmly believe our clients should be treated the way I would want my own family members to be treated. As a result, not only have I put together a compassionate and highly skilled team of people, but together we have served families from the grandparents down to the grandchildren. My staff and...


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