How Covid-19 affected the program – Community News
Social Security

How Covid-19 affected the program

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As the onset of the Covid-19 pandemic sent shockwaves through the US economy, it also raised concerns about how the subsequent downturn could affect Social Security.

The program’s trust funds were already running low. At the same time, the Social Security Administration faced the unprecedented task of moving its personal services to mainly mail-only services.

Now, in the wake of those initial shocks, any fears of disproportionate hits to the program’s trust funds or benefits have proved unfounded.

Meanwhile, government agency services and cost-of-living adjustment for next year could be ready for change.

Here’s what we now know about how the pandemic affected Social Security.

Social Security Trust Funds Are Still Running Out

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Social Security trust funds were already running low when Covid-19 hit.

In April 2020, the Social Security Administration said in its annual projections that estimated depletion dates remained the same. The old-age and survivors’ insurance trust fund, which pays out retirement benefits, would be exhausted by 2034, after which 76% of the promised benefits would be paid. Combined with the disability insurance fund, both sets of reserves were expected to be exhausted by 2035, with 79% of promised benefits being paid at that point.

But those estimates didn’t take Covid-19 into account. The economic downturn fueled fears that those exhaustion dates could be accelerated.

The bottom line is that we don’t think the picture has changed much.

Shair Akabas

director of economic policy at the Bipartisan Policy Center

The economic downturn could have pushed the pension fund’s exhaustion date to 2029 to 2033, based on estimates by the Bipartisan Policy Center done last year. Estimates from the Congressional Budget Office from earlier this year indicate that the trust fund could be exhausted by 2032, while the disability fund may run out by 2035.

Social Security administrators’ annual report for this year has yet to be released with estimates after Covid-19.

But as the economy grows, including the middle- and upper-income payrolls that make up most of the trust funds’ revenues, the impact of the pandemic could be small, according to Shai Akabas, director of economic policy at the Bipartisan Policy Center.

“The bottom line is we don’t think the picture has changed much,” Akabas said. “It’s still the bleak picture we had a year or two or three years ago.”

Those born in 1960 may receive a benefit reduction

The dramatic effect the pandemic had on the economy and employment in 2020 has worried some that the average wage index could fall dramatically.

That, in turn, could lower Social Security benefits for those people whose benefits are calculated based on that year, especially retirement benefits for people born in 1960.

The average wage index rose every year from 1951 to 2008 and fell 1.5% in 2009 as a result of the Great Recession, Social Security chief actuary Stephen Goss said last year. In 2020, a “much bigger drop” was possible, he said.

If the median wage index fell 5.9% from 2019, that would reduce the monthly retirement benefit for an average earner born in 1960 by about $119 per month, he said at the time.

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But the good news is that as 2020 has progressed, the average wage index doesn’t appear to have fallen as much as people expected.

The Congressional Budget Office estimated in January that it would have fallen just 0.5%. The official average wage index for 2020 will not be confirmed until later this year.

The recovery points to a much smaller decline in benefits for the affected cohort.

If that’s true, those beneficiaries won’t see such a steep benefit cut, Akabas said.

In addition, Congress is unlikely to take action on this point, although a floor will likely need to be put in place to prevent these kinds of outcomes from happening in the future, he said.

Social Security offices still have a postal backlog

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In March 2020, the Social Security Administration suspended personal services at its field and hearings due to the pandemic.

Today, personal appointments are limited. However, to get a time slot, your needs must be critical, such as if your problem interferes with your access to food, shelter, or medical care.

Other transactions, such as claims for benefits and requests for card replacements, have been made by mail instead.

But like the IRS, which has a backlog of millions of unprocessed paper tax returns, the Social Security Administration is lagging behind with its mail.

A recent investigation by the Inspector General’s Social Security Office found that the administration has “inadequate internal controls over mail handling.”

That was after the Inspector General’s Office visited 73 locations, including field offices, program service centers and Social Security card centers, and found a widespread backlog of unprocessed applications and inefficient processing procedures.

The Inspector General’s Office is working with the Social Security Administration to address these issues, with a final report expected before the end of this year.

Next year’s COLA could be much higher

seniors

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Social Security’s annual cost-of-living adjustment is calculated each year based on the Consumer Price Index for Urban Wages and Employees, or CPI-W.

Benefits rose 1.3% in 2021, giving about 70 million Americans a boost in their Social Security or supplemental income benefits.

For 2022, that adjustment may look much larger for one reason: rising inflation.

Higher prices for everything from food to gasoline have helped push the latest estimate for next year to 6.1%, according to The Senior Citizens League, an impartial senior citizen group.

If the annual increase reaches that level, it would be the largest increase since 1983.

However, there are still three months of data to come in before the Social Security Administration announces the official rate change for next year.