Key Takeaways: The Impact of COVID-19 on Social Security and Highlights from the Trustees' 2020 Report

The trustees’ report details the state of the two Social Security trust funds, the Old-Age & Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund, and the combined status of the trust funds, referred to as the OASDI trust fund.
Each year, the report informs policymakers and the public about the ability of the trust funds to meet the cost of scheduled benefits with tax revenue and trust fund reserves.

The 2020 estimates were developed before the economic fallout from the COVID-19 pandemic. Under that framework, reserves in the DI trust fund are estimated to be depleted in 2065, an extension of 13 years from last year’s report. OASI reserve depletion is projected to be in 2034, and the combined OASDI reserve in 2035, each the same estimate as last year’s report.

Costs for Social Security have risen substantially over the past decade and are expected to keep increasing largely due to a drop in birth rates and a rise in the number of Americans retiring. Additionally, the elimination of the Affordable Care Act’s excise tax along with lower interest rates have added to the trust fund shortfall. Notably, the two public trustee positions for Social Security’s board are currently vacant. It will be crucial to fill them before the next trustees’ report so the public has confidence in the adjustments made to account for the impact of the virus.

No. In 2034, for example, when OASI trust fund reserves are projected to run out, Social Security benefits will not be eliminated. Instead, they will only be paid with Social Security’s revenue (mostly payroll taxes). That revenue will only cover 76% of scheduled benefits, so beneficiaries at that time would see a 24% cut to their benefits.
Some combination of curtailing the rate of benefit growth and bringing in additional tax revenue will likely be necessary, since changing either one of these enough to restore solvency is unlikely to garner bipartisan support. As the date of reserve depletion approaches, the actions needed to restore solvency become much more drastic. This is a concerning report even before the effects of COVID-19 are taken into account.

With so much economic uncertainty, the biggest financial impact is likely to be a reduction in the payroll taxes that fund most of Social Security. BPC modeled a number of different scenarios to project the impacts of recessions of varying depth and length over the coming months and years. As an example, if tax revenue to Social Security decreases by 15% for 2020 and 2021, this would bump up the depletion date for the OASDI trust fund from 2035 to 2033. If the economic impact persisted longer, the depletion date could be as soon as this decade.