En español | Widespread unemployment last year due to the COVID-19 pandemic is a reason why the trust funds that help pay Social Security retirement and disability benefits could run short of money in 2034, one year earlier than previously projected, according to the annual report from the Social Security trustees overseeing the funds.
The trustees cited the wide-ranging impact of the pandemic as one of the causes of the earlier date for the shortfall of the Social Security retirement and disability trust funds. Because Social Security benefits are funded with money deducted from the paychecks of workers (with additional contributions from their employers), high unemployment means fewer people are contributing to the programs’ coffers. More than 22 million people were out of work in April 2020, and the national unemployment rate remained high until COVID-19 vaccines became widely available earlier this year.
The trustees also found that increases in deaths, decreases in births, and lower immigration — all due to COVID-19 — also played roles in the analysis that moved the shortfall in the retirement and disability trust funds forward by one year.
“The trustees’ projections in this year’s report include the best estimates of the effects of the COVID-19 pandemic on the Social Security program,” Social Security Administration Acting Commissioner Kilolo Kijakazi said. “The pandemic and its economic impact have had an effect on Social Security’s trust funds, and the future course of the pandemic is still uncertain.”
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“Social Security and Medicare are more crucial than ever for older Americans. Social Security is the only guaranteed source of retirement income, and Medicare provides the critical health coverage that seniors rely on and need,” AARP’s CEO Jo Ann Jenkins said. “Today’s trustees’ reports show that both programs are strong, but there are longer-term funding challenges to contend with. Any discussion about Americans’ earned benefits demands public input and a full and open debate.”
Partial benefits would be paid once trusts depleted
If no changes are made before the projected shortfall in 2034, Social Security would not have enough funds to pay full benefits to retirees. That would mean beneficiaries at that time would only receive 78 cents for every dollar they should be receiving. More than 65 million Americans currently receive Social Security benefits.
There actually are two distinct Social Security trust funds: the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. When looked at separately (rather than the combined analysis used to predict the 2034 date), the OASI trust fund, which pays retirement and survivor benefits, is projected to become depleted in 2033, one year sooner than in the 2020 report. After 2033, it would be able to pay 76 percent of scheduled benefits with continuing tax income.
The DI trust fund is estimated to become depleted in 2057, eight years sooner than last year’s report, with 91 percent of benefits still payable thereafter.
Medicare trust funds hold steady
A separate report from the Medicare trustees found that the trust fund that helps cover roughly 61.2 million Medicare Part A beneficiaries would run out of money in 2026, the same date projected by last year’s report. Medicare’s Part A Hospital Insurance (HI) trust fund, which pays hospital inpatient expenses, is still projected to be able to pay 91 percent of its scheduled benefits if its trust fund runs out of money in 2026.
“Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare,” the trustees wrote in their 2021 report released on Aug. 31. “Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”
The Supplemental Medical Insurance (SMI) trust fund for Medicare Part B, which pays for physician and outpatient services, and Part D, which covers prescription drug benefits, is solvent indefinitely, thanks to financing from general revenues and beneficiary premiums.
“Medicare trust fund solvency is an incredibly important, long-standing issue, and we are committed to working with Congress to continue building a vibrant, equitable and sustainable Medicare program,” Centers for Medicare and Medicaid Services Administrator Chiquita Brooks-LaSure said.