COVID-19 has been wreaking havoc on the U.S. economy for close to three months now, and while parts of the country are beginning to reopen, it's safe to say that our total recovery is still a ways off. Not only is COVID-19 hurting millions of workers, but it also has the potential to impact current and future Social Security recipients. Here are some of the reasons the pandemic might drive benefits down.

1. Less payroll tax revenue will put a strain on Social Security

Social Security's primary source of revenue is the 12.4% payroll tax it collects on wages of up to $137,700 (that figure can change from year to year, but it applies to earnings in 2020). If you're self-employed, you pay the entire 12.4% tax yourself. If you work for someone else, you pay half and your employer picks up the rest of the tab. But with millions of Americans out of work because of COVID-19, Social Security is currently taking in a lot less revenue than normal. And the longer unemployment levels stay the way they are today, the more detrimental that situation will become.

Older woman wearing mask


Social Security already expects to owe more in benefits than it collects in revenue in the coming years, as more and more baby boomers exit the workforce and not enough replacement workers enter it. The program has trust funds it can dip into in the event of a revenue shortfall, but once those funds are depleted, benefit cuts will be on the table. Right now, the Social Security Trustees estimate that the program's trust funds will be out of money by 2035, but a sustained decline in payroll tax revenue could push up that milestone.

2. Low demand for consumer goods may wipe out next year's COLA

Each year, Social Security recipients are entitled to a cost-of-living adjustment, or COLA, the purpose of which is to help ensure that seniors are able to retain their buying power in the face of inflation. COLAs are based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) so that when the cost of common goods and services holds steady or drops, Social Security benefits can remain stagnant (thankfully, they can't go down). With less demand for common goods and services as struggling Americans curb their spending, the CPI-W likely won't indicate an increase in their cost. The result? An absent COLA for 2021.

3. Unemployed seniors may lose out on years of wages

Social Security benefits hinge on earnings. Specifically, they're calculated based on workers' highest-paid 35 years in the workforce. But right now, a lot of seniors are out of work because of COVID-19, and those who struggle to return to the workforce (whether because of health concerns or a lack of job opportunities) may be forced to retire early. If that happens, they may lose out on years of earnings that would've otherwise been factored into their benefits, thereby resulting in a lower monthly payment -- for life.

When COVID-19 cases first started multiplying in March and stay-at-home orders were enacted, many people chalked it up to a temporary disruption. But the truth is that the effects of COVID-19 may linger well beyond 2020, and unfortunately, that extends to Social Security -- an already troubled program that really didn't need its boat rocked.