As the Covid crisis took hold in early 2020, budget experts worried that rapidly disappearing jobs and plummeting tax receipts would put a serious dent in Social Security’s finances. But according to The Wall Street Journal’s Kate Davidson Friday, the retirement and disability system is emerging from the recession in better shape than the experts feared.
Before the pandemic struck, the Social Security trustees estimated that the system would exhaust its reserves by 2035. In light of the Covid recession, the trustees updated their estimate last fall and moved that date up by one year, to 2034.
Other projections were more pessimistic. The Bipartisan Policy Center, for example, said the Social Security trust funds could run dry five years early if the recession proved to be as long-lasting and damaging as the one in 2008-2009, resulting in a 25% cut to benefits for retirees and a 13% cut for those on disability.
Now, however, BPC estimates that the cumulative effect of the Covid recession will be more modest, but still result in a loss of one or two years in the lifespan of the trust funds. The Social Security trustees are expected to release a new estimate that incorporates the most recent economic data, as well, but have delayed the update that typically comes in April as they gather more information.
What happened? Jobs have rebounded much faster than the last time around, with two-thirds of the jobs lost in the pandemic already recovered. By comparison, it took about four years to get to that point after 2009. In addition, claims for disability fell in 2020, the opposite of what usually happens in a recession, possibly due to the increased difficulty of traveling to Social Security offices to file claims, as well as the closure of many facilities.
The bottom line: Although there was great risk of serious harm, the Social Security trust funds survived the Covid crisis in better-than-expected shape. Still, the system is facing serious long-term financial challenges, which Congress appears to be in no hurry to address.