The crisis could lead to cuts in benefits

According to the Social Security Administration (SSA), Social Security benefits are an important source of income for millions of retirees, and about one in five married couples depend on their benefits for at least 90% of their income during the retirement.

However, you may not be able to trust your monthly checks as much as you think of the future. While the program is not bankrupt or on the verge of collapse, benefit cuts are on the table. And there are some signs that those cuts may occur earlier than expected.

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While current benefits are not at risk of declining due to the coronavirus pandemic, COVID-19 could exacerbate Social Security problems and lead to future cuts.

SSA generally uses payroll tax money to pay current retiree benefits. However, payroll taxes are no longer sufficient to continue paying benefits in full, so SSA has been forced to take advantage of its two trust funds to cover the deficit. However, those funds are quickly running out of money and, according to the latest SSA projections, will run out by 2034. If Congress doesn’t make any changes before that, payroll taxes will only be enough to cover around 76% of future profits.

COVID-19 could make the problem worse, however. Because Americans face unemployment in record amounts, there are many people who are not paying payroll taxes right now. That means SSA is collecting far less than expected in taxes and will likely need to take even more of its trust funds to continue paying current benefits. While no one knows exactly what this will mean for the future of Social Security, a report by the Bipartisan Policy Center estimates that due to COVID-19, trust funds could be depleted as early as 2028.

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While mass layoffs have affected all age groups, older workers have been particularly affected. Adults 55 and older experienced an unemployment rate of nearly 10% in June, according to the U.S. Bureau of Labor Statistics, which is one of the highest unemployment rates among all age groups.

If you lose your job later in life, it might be difficult to find another one before you retire. And if a second wave is about to hit, there could be another round of layoffs in the near future. With no end in sight for this pandemic, it is unknown when the jobs will be available again.

For that reason, older unemployed workers may simply choose to retire early instead of looking for another job. They may also decide to claim Social Security sooner than they had planned, which means there will be more money that SSA will need to withdraw from its trust funds. Between receiving less money in payroll taxes and paying more in benefits, that could cause trust funds to run out sooner and benefit cuts to occur earlier than expected.

As part of the upcoming coronavirus stimulus package, President Trump is proposing payroll tax cuts. While that may be good news for today’s workers, it could spell disaster for Social Security.

The payroll tax cuts would reduce the amount SSA has to pay in benefits right now, which means it would need to take even more of its trust funds. Also, it would mean that once the trust funds are exhausted, SSA will have less money to pay in future benefits. Right now, payroll taxes are expected to cover only about 76% of future profits. If taxes are reduced, benefits may need to be further reduced.

There is no guarantee that any of these things will happen, but if Congress does not find a solution, benefit cuts are a real possibility. Since no one knows what will happen, it is a good idea to plan for benefit reduction while preparing for retirement.

Social Security benefits are designed to replace about 40% of your pre-retirement income, but you may want to assume that they will make up an even smaller portion of your income during retirement just to be safe. Do your best to bolster your retirement fund now because you may need to rely on your personal savings for most of your income in your old years.

You may also consider delaying Social Security benefits because that will result in larger checks. If benefits are cut in the future, that extra money each month can serve as a buffer.

No matter how you choose to prepare for retirement, make sure you have some form of Social Security strategy. Even if the benefit cuts don’t happen, it’s best to be prepared, just in case.

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According to the Social Security Administration (SSA), Social Security benefits are an important source of income for millions of retirees, and about one in five married couples depend on their benefits for at least 90% of their income during the retirement.

However, you may not be able to trust your monthly checks as much as you think of the future. While the program is not bankrupt or on the verge of collapse, benefit cuts are on the table. And there are some signs that those cuts may occur earlier than expected.

Save better, spend better: Money tips and tips delivered directly to your inbox. sign up here

While current benefits are not at risk of declining due to the coronavirus pandemic, COVID-19 could exacerbate Social Security problems and lead to future cuts.

SSA generally uses payroll tax money to pay current retiree benefits. However, payroll taxes are no longer sufficient to continue paying benefits in full, so SSA has been forced to take advantage of its two trust funds to cover the deficit. However, those funds are quickly running out of money and, according to the latest SSA projections, will run out by 2034. If Congress doesn’t make any changes before that, payroll taxes will only be enough to cover around 76% of future profits.