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4 Ways COVID-19 Could Hurt Social Security & What to Do

By Christy Bieber - May 4, 2020 at 7:05AM

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Make sure you prepare so you can mitigate the damage.

Coronavirus is having a devastating financial effect, with millions of Americans claiming unemployment benefits as businesses close their doors. 

While retirees may not be worried about a paycheck, they are unfortunately not immune from the fallout either. In fact, COVID-19 could harm Social Security recipients in four important ways, and seniors should take action to mitigate potential financial damage the novel coronavirus could cause.

Here's what you need to know to do that. 

Older woman looking worried.

Image source: Getty Images.

1. The trust fund could run dry sooner

Social Security is largely supported by payroll taxes, but it also has a trust fund it can tap into when collected revenue isn't enough to pay promised benefits. The 2020 Social Security trustee's report projected the trust fund would run dry in 2035, necessitating a 21% benefits cut. 

Unfortunately, COVID-19 could accelerate the depletion of the trust fund for two reasons:

  • More people claim Social Security during recessions, so the program could be forced to start paying out more money sooner
  • Payroll tax collection drops during a recession, so less money will be coming in to pay benefits, increasing reliance on the trust fund to cover the shortfall

The 2008 financial crisis illustrates the potential damage. While the 2008 pre-recession trustee's report projected the trust fund would run short in 2041, the 2009 report moved the date to 2037 due to a sharp drop in the program's annual surplus of income relative to expenses. COVID-19 could have a similar or worse effect, especially as the Trump administration considers a payroll tax cut. And even without a tax cut, the Bipartisan Policy Center has warned the fund could be depleted as soon as 2029 due to coronavirus fallout.

To plan for a benefits reduction that could come sooner than expected, current retirees should prioritize bulking up their savings accounts, while those who are still working should invest more for retirement. Pre-retirees may also consider delaying their claim for Social Security benefits, as early filing reduces the size of monthly checks.

And both current and future retirees should pay careful attention in the 2020 election to all candidate proposals for shoring up the program's finances. Politicians can and likely will act to stop a 21% cut, but whether benefit reductions or tax increases occur will depend in large part on who is in office during the next several years. 

2. Beneficiaries have fewer options for help with their benefits

As social distancing measures were put into place, all local Social Security offices closed effective March 17, 2020. The closure with no announced reopening date has left Americans without options for in-person support.

If you have problems receiving benefits, want to go to an office to claim them, or need help understanding what benefits you're entitled to, you've been left in the cold. While you can call Social Security at 800-772-1213, the Administration is warning of long hold times and urging people to try to use the assistance available on the web first. 

For those who need to, you can visit Social Security's online services page to:

  • Estimate your retirement benefits
  • See the status of your benefits application
  • Apply for retirement, disability, or Medicare benefits
  • Appeal a decision made in connection with your account
  • Change your address
  • Get proof of your benefits
  • Set up direct deposit or change your direct deposit information

If you can't accomplish what you need online, you can also find the phone number of a local field office where you might be able to get help faster than by calling the national number. 

3. The cost of living adjustment may be lower next year

Cost of living adjustments help ensure Social Security income provided to retirees doesn't lose buying power. While the adjustments often aren't large enough, they do provide a measure of protection against inflation.  

But these raises only happen when a financial index (specifically, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W) shows prices rising year over year. And a dramatic drop in oil prices, coupled with possible deflation associated with a severe recession, could make next year the fourth year since 2010 when price increases don't happen and there's no COLA

While recessions don't always mean falling prices, 2010 and 2011 (the years after the financial crisis) were two of the other years when no raises occurred. If coronavirus has a similar economic effect, next year could very well repeat this troubling pattern. 

Seniors dependent on Social Security shouldn't count on this raise and, in fact, should consider looking for ways to tighten their belts in case no adjustment occurs -- especially as many experts argue CPI-W isn't a very accurate measurement of how much their spending actually increases. 

Some options for cutting costs could include:

  • Using coupons for groceries
  • Shopping carefully for an appropriate Medicare plan to limit healthcare expenditures
  • Improving home efficiency to cut utility bills
  • Driving less to reduce transportation expenses

Social distancing due to COVID-19 could also lead to a reduction in dining out, travel, and entertainment expenses, and seniors can pocket these extra funds to save for a rainy day. 

4. Social Security recipients are being targeted by scammers

The Social Security Administration is also warning of COVID-19-related scams targeting benefits recipients.

Specifically, one common scam involves fraudulent letters telling people their benefits will be suspended due to coronavirus unless they provide their personal information or make payment via wire transfer, mailed cash, internet currency, or the purchase of retail gift cards. 

Beneficiaries need to know their payments will not stop due to the virus, and that the Social Security Administration will never:

  • Threaten the suspension of your benefits or threaten legal action unless you pay fees or fines 
  • Ask for or send personal information via email
  • Demand that you keep a Social Security problem a secret
  • Require you to pay anything in order to continue receiving benefits or ask for payment in exchange for a benefits increase

If you are unexpectedly contacted via phone or email by Social Security, treat the correspondence as a scam and avoid engaging. Hang up and call your local field office or the national phone number at 800-772-1213 if you have doubts about whether the call was a legitimate one. 

Don't let COVID-19 hurt your finances

It's frightening to consider a possible benefits cut or to plan for what you'll do if you don't get a Social Security raise you've been counting on. But preparing for the effects of COVID-19 is a smart move whether you're a current retiree or will be claiming benefits in the future.

Bulking up your emergency fund, looking for budget cuts you can make, and paying careful attention to how politicians plan to protect Social Security are steps that can help -- as can investing more money now to supplement your benefits if you can. 

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