Please ensure Javascript is enabled for purposes of website accessibility

The Coronavirus Pandemic Has Made Americans Even More Nervous About Social Security

By Maurie Backman - Jul 31, 2020 at 7:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Social Security was in trouble before the COVID-19 outbreak, but now, the program is in even worse shape.

Millions of seniors collect Social Security, and for many, those benefits are their primary source of retirement income. But Social Security's finances have long been rocky, and the COVID-19 pandemic has only made an already dire situation even worse.

Social Security's main source of revenue is payroll taxes -- the taxes workers and employers pay on wages. This year, due to unprecedented levels of unemployment, Social Security is collecting less revenue than it initially expected to. And that's a bad thing, because that lack of revenue might force the program to start depleting its trust funds sooner than planned. Once those trust funds run out of money, major benefit cuts may be on the table.

It's not shocking, then, to learn that 61% of Americans say they're now more worried than ever about Social Security running out of money down the line, according to a new Nationwide survey. But while that's a very valid concern, the good news is that, despite the program's financial shortcomings, Social Security is actually in no danger of going away completely.

Five Social Security cards

Image source: Getty Images.

What's in store for Social Security?

Workers who pay into Social Security their entire lives want to make sure they're entitled to benefits once they retire -- and that makes sense. Thankfully, workers of all ages today stand to collect some amount of money from Social Security once they retire. Whether they're able to get their full scheduled benefits, however, is up for debate.

Once Social Security depletes its trust funds, recipients are at risk of losing a large chunk of their benefits to across-the-board cuts. But that assumes lawmakers aren't able to intervene with a fix.

A number of solutions have already been floated in an effort to avoid a scenario where Social Security benefits are subject to cuts. These include:

  • Raising full retirement age, or the age at which seniors can collect their monthly benefit in full
  • Raising the wage cap for Social Security taxes (right now, wages above $137,700 aren't subject to payroll taxes for Social Security purposes)
  • Eliminating the wage cap altogether
  • Implementing a means test so that Social Security benefits go to the neediest seniors

Of course, each of these suggestions has its advantages, as well as its drawbacks. The point, however, is that lawmakers are working on solutions to Social Security's fiscal woes, so there's no need to give up hope on collecting a full retirement benefit.

What's the timeline for potential benefit cuts?

Before the COVID-19 pandemic, the Social Security Trustees estimated that the program's trust funds would be out of money by 2035. In light of the pandemic, that date may arrive sooner.

While it's important for workers to brace for the possibility of reduced benefits, let's not lose sight of the bigger picture: Social Security is not in danger of running out of funding completely, and while benefit cuts are on the table, they're not a given. Still, workers today can compensate for a potential reduction in future benefits by saving aggressively for their senior years. That way, they'll be less reliant on Social Security down the line, regardless of what it actually ends up paying them.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.