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When the outbreak of the Covid-19 pandemic sent shock waves through the U.S. economy, they also raised concerns about how the ensuing downturn could affect Social Security.
The program’s trust funds were running low. At the same time, the social security administration was faced with the unprecedented task of shifting its personal services mainly to the post office.
Now, after these initial shocks, some fears of a disproportionate impact on the trust funds or benefits of the program have proven unfounded.
In the meantime, the government agency’s services and cost of living adjustment could change for the next year.
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 at the time of the Covid-19 outbreak.
In April 2020, the Social Security Agency announced in its annual forecasts that the estimated consumption data remained the same. The old-age and survivors’ trust fund, which pays retirement benefits, is expected to be exhausted by 2034, with 76% of promised benefits due. In combination with the disability insurance fund, both reserves are likely to be used up in 2035, with 79% of the promised benefits being payable at this point in time.
But those estimates didn’t take Covid-19 into account. The economic downturn fueled some fears that these fatigue data could be accelerated.
The bottom line is that we don’t think the picture has changed much.
Director of Economic Policy at the non-partisan Policy Institute
The economic downturn may have caused the pension fund’s exhaustion date to be postponed to 2029-2033, based on estimates by the bipartisan Policy Center last year. Estimates by the Congressional Budget Office earlier this year suggest the trust fund could be depleted in 2032 and the disability fund could expire in 2035.
The Social Security Administration’s annual trustee report for this year has yet to be released with estimates based on Covid-19.
However, as the economy grows, including middle and upper-income payrolls that make up most of the trust fund’s revenue, the impact of the pandemic could be minor, according to Shai Akabas, director of economic policy at the Bipartisan Policy Institute.
“The bottom line is, in our opinion, the picture has not changed much,” said Akabas. “It’s still the grim picture we had a year or two or three years ago.”
Those born in 1960 can receive a benefit reduction
The dramatic impact of the pandemic on the economy and employment in 2020 raised concerns that the average wage index could fall dramatically.
This, in turn, could lower social security benefits for those whose benefits are calculated based on that year, particularly pension benefits for those born in 1960.
The average wage index rose every year from 1951 to 2008 and fell 1.5% in 2009 due to the great recession, said Stephen Goss, chief actuary for social security last year. In 2020 a “much larger decline” is possible, he said.
If the average wage index were to decline 5.9% from 2019, it would reduce the monthly retirement pension for an average earner born in 1960 by about $ 119 per month, he said at the time.
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The good news, however, is that the median wage index doesn’t seem to have fallen as much over the course of 2020 as people expected.
The Congressional Budget Office estimated in January that it could only have fallen 0.5%. The official average wage index for 2020 will only be confirmed later this year.
The recovery indicates a significantly smaller drop in performance for the affected cohort.
If so, these beneficiaries will not experience as much benefit cutbacks, Akabas said.
In addition, Congress is unlikely to act immediately on the issue, although there should likely be a floor to prevent such outcomes in the future, he said.
Social welfare offices still have a mail jam
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In March 2020, due to the pandemic, the Social Security Administration suspended personal service in its field and hearing offices.
Today, personal appointments are only possible to a limited extent. However, in order to get a window of opportunity, your needs must be crucial, e.g. For example, if your problem is affecting your access to food, shelter, or medical care.
Other transactions – such as benefit requests and card replacement requests – were instead carried out by mail.
But like the IRS, which is backlog of millions of unprocessed paper tax returns, the Social Security Agency is also behind on their mail.
A recent investigation by the Inspector General’s Social Security Bureau found that the administration had “inadequate internal controls over mail processing”.
That was after the Inspector General’s office visited 73 locations, including branch offices, program service centers, and social security card centers, and found a widespread backlog of unprocessed applications and inefficient processing practices.
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.
The COLA next year could be much higher
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The annual social security cost of living adjustment is calculated each year based on the Consumer Price Index for Urban Wage earners and Office Workers (CPI-W).
Benefits rose 1.3% in 2021, giving about 70 million Americans an increase in their social security or supplementary insurance income.
For 2022, that adjustment seems to be potentially much larger for one reason: rising inflation.
Higher prices for everything from groceries to gasoline have helped push the latest estimate to 6.1% for the next year, according to the Seniors League, a non-partisan seniors group.
If the annual increase reaches this level, it would be the largest increase since 1983.
However, there are still three months of data required before the Social Security Administration announces the official rate change for the next year.