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4 Ways Social Security Benefits Could Be Affected by a COVID-19 Second Wave

By Katie Brockman – Jul 9, 2020 at 6:10AM

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A second wave of the coronavirus pandemic could have a devastating effect on your future benefits.

With the number of coronavirus cases skyrocketing in cities across the country, many Americans fear a second wave of the pandemic may be on the way.

The nation saw a record number of new infections on July 1, with more than 54,000 new confirmed cases of COVID-19 in a single day, according to data from the Centers for Disease Control and Prevention. That surpasses the record from April, which saw more than 43,000 new infections in a single day.

Whether we're heading toward a second wave or are already in the thick of it, it's important to think about how this could affect your retirement plans. And there are a few ways another round of COVID-19 could affect your future Social Security benefits.

Stack of Social Security cards

Image source: Getty Images.

1. Unemployment could reduce your average earnings

Tens of millions of Americans have lost their jobs due to COVID-19, and a second wave could trigger another round of layoffs. If you lose your job and are unemployed for a significant amount of time, it could affect how much you're eligible to collect in Social Security benefits.

Your benefits are based on the 35 highest-earning years of your career. The Social Security Administration takes an average of those earnings and then adjusts them for inflation, and the result is the benefit amount you'll receive if you claim at your full retirement age.

Working fewer than 35 years will mean you'll have zeros added to your earnings average, which would reduce your benefit amount. Even if you have worked at least 35 years by the time you lose your job, spending a significant amount of time unemployed during your peak earning years could also reduce your earnings average.

2. You could have to claim early

If you lose your job in your early 60s, it could be tough to find another one right now. Depending on how long this pandemic lasts, you could be unemployed for a while. So some people may choose to simply retire early rather than look for another job. And if you retire early, you might also choose to claim Social Security as early as possible to bring in some extra retirement income.

By claiming early, however, your checks will be reduced. The only way to receive the full benefit amount you're entitled to is to wait until your full retirement age or beyond to claim. For most people, that's somewhere between 66 and 67 years old. You can file for benefits as early as age 62, but your checks will shrink by up to 30% by doing so. This reduction is permanent, too, so make sure you consider your options carefully before you claim early.

3. All beneficiaries could see their benefits reduced

The Social Security Administration (SSA) uses money from payroll taxes and its two trust funds to pay out benefits to current retirees. However, those trust funds are quickly running out of money and are expected to be depleted by 2034. When that happens, payroll taxes alone will only be enough to cover around 76% of future benefits, meaning benefits could be reduced by nearly 25%.

COVID-19 could make matters worse because so many workers are unemployed and not paying payroll taxes. If there's a second wave and another round of mass layoffs, that could exacerbate the problem even more. With less money coming in from payroll taxes, the SSA might be forced to take more cash from its trust funds to continue paying out benefits, resulting in those funds running dry before 2034 and beneficiaries seeing their checks reduced sooner.

4. Payroll tax cuts could further reduce benefits

President Trump is proposing payroll tax cuts as part of the next coronavirus stimulus bill, which could have a serious effect on the future of Social Security.

If payroll taxes are cut now, that would mean even less money is available for the SSA to pay out in benefits and the trust funds could be depleted sooner. In addition, once the trust funds run out of money, the SSA may need to depend entirely on payroll taxes to continue paying out benefits. As it stands, benefits could already be reduced by around 25%. But if payroll taxes are cut, benefits could be reduced even further.

The coronavirus pandemic has affected everyone to some degree, and it could also have an effect on your Social Security benefits. Social Security may not be as dependable once you're ready to retire, so it's a good idea to save as much as possible in your retirement fund just in case your benefits are reduced in the future.

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