The seemingly endless financial and economic chaos fueled by the coronavirus pandemic stands to infect yet another patient: Social Security.
Social Security has been forced to use its reserves, a so-called trust fund, to pay benefits because the system isn’t taking in enough cash from payroll taxes, which is how the program is financed.
As MarketWatch’s Paul Brandus explains, “prior to the economic downturn—or collapse—that we’re now experiencing, the trust fund was projected to run out of money by 2035.”
And because some 22 million Americans have lost their jobs in the last four weeks, those displaced workers aren’t paying 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,” Brandus predicted.
He went on to explain that 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, and a MarketWatch columnist.
“We are going to lose a lot of payroll tax revenue this year,” Munnell says, while “expenditures keep at their regular pace, if not at an immediately higher pace, because older people who can’t find a job might turn to claiming early.”
“The trust fund has been filling that gap,” Munnell adds, “but as that gap gets bigger, the trust fund will be used up faster.”
Munnell’s estimated 2033 depletion estimate is two years sooner than what the Social Security trustees estimated last year.
Newsmax Finance Insider Trevor Gerszt agrees with the 2033 date while he also sounded a similar alarm about Social Security, noting that "it's no secret that the Social Security System is in a shambles."
"If you’re expecting Social Security to make up a significant portion of your retirement income, you’re going to want to start taking steps right now to ensure that you have other sources of income in retirement," Gerszt recently explained in a Newsmax Finance Insider column.
"With the system already in the first stages of decline, you can’t afford to wait until it completely collapses, otherwise you’ll end up in retirement with significantly less income than you had hoped for," Gerszt warned.
"Even when the lockdowns are lifted, it will take a long time for business to get back to normal. Restaurants in particular will be hard-hit, as many will likely go under before they’re able to get back into operation. That could leave Social Security payroll taxes much lower for years, increasing the rate at which the trust fund is drawn down," Gerszt said.
"Once the Social Security trust fund is depleted, Social Security tax receipts are only expected to provide enough money for about 75-80% of projected benefit outlays. And those projections are from last year’s report. With the deterioration of the economy so far this year, those financial projections could get even worse."
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