With quarantines, travel bans, and commerce closures worldwide, we have a lot of immediate considerations on our plates. One thing that isn’t at the forefront of most people’s minds is Social Security.
A before we even get started discussing it, we just want to say this:
Your immediate Social Security benefits will be just fine.
As long as there is a payroll tax, retirees will receive their Social Security benefits. There is absolutely no reason to worry that benefits will be slashed or stopped during this economic predicament. People are worried enough as it is—we do NOT want to contribute to that stress.
However, sooner or later—probably later—we will get this virus under control. And at that time, we will have a chance to survey its long-term effects on our economy and the economies of other nations.
But even then, Social Security probably won’t be one of the first things most of us think about. That’s because it seems like such a simple program: workers pay in, beneficiaries take out. At face value, it may not seem like a program directly affected by changes in the stock market tide.
But Social Security is a cogwheel in the entire working machine of our nation’s economy. If something unexpected throws a wrench into that machine, Social Security—like every other gear in it—isn’t going to turn like we intend it to.
With the stock market still in a nosedive, oil prices tumbling, and international powerhouses like China putting an indefinite slow on the production and shipping of goods, our economy has encountered its absolute least favorite thing: uncertainty. Whether caused by disease, political unrest, or natural disasters, no economy tolerates uncertainty well.
This kind of uncertainty creates a domino effect: stocks drop, people pull their investments, they start saving instead of spending, businesses take the financial hit, and wages go stagnant and hiring gets frozen. Businesses may also choose to let employees go.
Our current cause for financial anxiety is unique in its ability to take that situation and exacerbate it ever further. Due to the virus, businesses across the world are being forced to close their doors. Hourly wage workers can’t get paid if they can’t go to work. In areas that aren’t quarantined, people are still cautiously avoiding public places. Businesses that thrive on foot traffic aren’t making sales. The same damage that any unexpected event can cause over the course of several weeks to months can be caused by a pandemic very quickly.
Ultimately, the results are low or stagnant wages and increased unemployment. And these things definitely impact Social Security.
The more people who work and contribute to the Trust Fund via the payroll tax, the more solvent Social Security is. As workers are sent home—and we consider payroll tax cuts as a means of financial relief—Social Security will have less money coming in. This could adversely affect a solvency deadline that was already calculated using very optimistic projections.
In a more immediate way, Coronavirus could take its toll on next year’s cost-of-living adjustment (COLA).
COLAs are calculated in a way that takes the previous year’s rising and falling prices into account in order to establish how much more beneficiaries should receive to make up for inflation. This is done using what’s called a Market Basket. The Market Basket is a mix of different goods and services that average people buy every day.
Most definitely included in that basket are oil and gas prices and the price of food and grocery store essentials.
As we’ve discussed, an international oil price war catalyzed by Coronavirus has caused oil prices to plunge. But at the same time, panic, quarantines, and production stoppages have caused scarcity with essential commodities. These dramatic price shifts, if sustained, will ultimately skew next year’s COLA calculations, for better or for worse.
But it’s important to reiterate that none of this is going to determine whether or not you receive your Social Security benefits or not. While these things may impact what benefits look like in the next several years or what your COLA looks like next year, nobody should be panicking about their benefits. A lot of things may seem uncertain right now, but your Social Security is not one of them.
However, Congress should take these considerations and realities very seriously. If we had the luxury of time to wait before, we definitely don’t have it now. This needs to be a learning experience for our legislators in many different respects. Congress needs to do something to restore solvency and protect the Trust Fund.