DEAN STATLER: COVID-19 Negatively Impacting the Social Security Retirement System
By Dean Statler, Pathway To Retire // September 18, 2020
COVID-19 has changed the way we interact with others and our ability to work. Currently, one in four worldwide confirmed COVID-19 cases is occurring in the U.S. The halting of economic activity is expected to damage our economy more than any other previous occurrence.
While remote work is happening at some companies, many Americans are unable to collect their regular paychecks and are waiting on unemployment assistance from their state.
Undoubtedly this will negatively impact Social Security tax collection and Social Security Retirement benefits. Here’s why:
■ The Social Security system is supported by payroll taxes deducted from currently employed Americans paychecks and their employer’s contributions.
■ The benefits received by today’s retirees are not from their own ‘banked contributions’ from their working years. The system’s design is to collect and payout benefits almost immediately after collection.
■ As of the end of March 2020, 17 million Americans are not working and have filed for unemployment benefits, and that number is expected to grow. Where will the money deficit come from to pay into the Social Security System?
While current retirement benefit payments aren’t expecting an impact, future retirement benefits for those currently working will be. The Social Security Board of Trustees previously projected that Social Security’s $2.9 Trillion in reserve assets will exhaust by 2035; COVID-19 will push the depletion date sooner.
This development doesn’t mean that if the reserve reaches zero, there will be no more social security benefits paid to retirees, but that the existing payout schedule isn’t sustainable, primarily due to COVID-19. It may lead to benefit payment cuts for current and future Social Security retirement beneficiaries.
When Americans receive their CARES Act stimulus checks starting in mid-April 2020, there won’t be any Social Security income tax (listed as SSI on pay stubs) taken, nor will it be a source of income for the 2020 income tax filing.
Additionally, unemployment benefits checks don’t have Social Security income tax taken out either. Both put additional strain on the Social Security system even though they help Americans during this pandemic.
What can you do to help your future Social Security Retirement benefits reduction?
Consider Purchasing an Annuity. An annuity is a contract with an insurance company that provides a guaranteed stream of income in retirement that you can’t outlive. With the possibility of future Social Security Retirement Benefits cuts, an annuity can take the place of fixed, guaranteed payments, regardless of future economic impacts such as today.
Additionally, ask your financial advisor to remove Social Security as a source of retirement income from your financial plan. If you do receive benefits, you’ll be happy about the bonus!
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Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM, Pathway to Retire LLC (PTR), and Tom Collins Insurance Agency Inc. (TC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by Brookstone Capital Management.