The economic impact of COVID-19 has been felt from coast to coast. And, unfortunately for many pre-retirees, it could potentially impact Social Security benefits as well. Social Security’s long-term funding has been a concern for some time now.  The Social Security Board of Trustees’ annual report released earlier this month indicates that if Congress doesn’t take action to address funding, benefits will be cut to 78 percent by 2034. This is one year sooner than previously projected, due in late part to COVID-19 drastically impacting American’s incomes and thus payments into the Social Security fund.

Social Security was designed to be run like a pension fund where the government would set aside employee and employer contributions to be paid back out later, with interest.  Then each year, the fund balances would be reviewed, and any necessary changes made to either contribution rates or payout rules.  Other than a slight adjustment in retirement age, no changes have been made to the fund in 20 years, despite consistent projections that the fund would run out of money in the mid 2030’s.  In fact, several times since the 1970’s the federal government has suspended contributions into the fund to “help” the economy during recessions or borrowed from the Social Security fund to support current spending.  The amount borrowed has not been paid back.    

In 2020, helped along by high unemployment numbers due to COVID-19, for the first time Social Security paid out more money than it received.   The fund is expected to continue to pay out more than it receives every year until it runs out of money in 2034.   Ignoring the interest owed on the borrowed funds, here’s the reality of Social Security:

  • The average American collecting Social Security receives $1544 per month
  • The average American paid $2,463 per year into Social Security through 2016, for a total of $98,520 over their working years
  • At 0% interest, this fund equals 5 years of distributions.
  • The average life expectancy for somebody reaching age 65 is 18 years
  • Therefore, the average American receives 13 years of UNFUNDED distributions from Social Security.

A report released in July of this year from the Congressional Research Service (a bi-partisan non-profit research organization) states that after insolvency:

“Maintaining financial balance after trust fund insolvency would require substantial reductions in Social Security benefits, substantial increases in tax revenues, or some combination of the two. The trustees project that following depletion of the combined funds . . ., Congress could restore balance by reducing scheduled benefits by about 21%; the required reduction would grow gradually to 27% by 2094. An alternative could be for Congress to raise the Social Security payroll tax rate from 12.4% to 15.7% following depletion in 2035, then gradually increase it to 16.9% by 2094.” Social Security: What Would Happen If the Trust Funds Ran Out? (

The report also states:

“Trust-fund insolvency could be avoided if expenditures were reduced or receipts increased sufficiently. The sooner adjustment to Social Security policy is undertaken, the less abrupt the changes would need to be, because they could be spread over a longer period and would therefore affect a larger number of workers and beneficiaries. As well, enacting adjustment to Social Security policy sooner, rather than later, would give workers and beneficiaries more time to plan and adjust their work and savings behavior.”

Even with benefits at full funding, you may not be able to meet your financial needs in retirement on Social Security alone. For those who can plan and prepare, Social Security doesn’t have to be their only source of retirement income. There are a few options to consider when preparing to supplement the difference between what you may receive in Social Security benefits and what you need to thrive in retirement.   Contact our office to help you review your options and be ready for a successful retirement regardless of the fate of Social Security.