COVID-19 has changed the way we interact with others and our ability to work. Currently, one in four worldwide confirmed COVID-19 cases is occurring in the U.S. The halting of economic activity is expected to damage our economy more than any other previous occurrence. While remote work is happening at some companies, many Americans are unable to collect their regular paychecks and are waiting on unemployment assistance from their state. Undoubtedly this will negatively impact Social Security tax collection and the Social Security Retirement System. Here’s why:
- The Social Security system is supported by payroll taxes deducted from currently employed Americans paychecks and their employer’s contributions.
- The benefits received by today’s retirees are not from their own ‘banked contributions’ from their working years. The system’s design is to collect and pay out benefits almost immediately after collection.
- As of the end of March 2020, 17 million Americans are not working and have filed for unemployment benefits, and that number is expected to grow. Where will the money deficit come from to pay into the Social Security System?
Future Retirement Benefits
While current retirement benefit payments aren’t expecting an impact, future retirement benefits for those currently working will be. The Social Security Board of Trustees previously projected that Social Security’s $2.9 Trillion in reserve assets will exhaust by 2035; COVID-19 will push the depletion date sooner.
This development doesn’t mean that if the reserve reaches zero, there will be no more social security benefits paid to retirees, but that the existing payout schedule isn’t sustainable, primarily due to COVID-19. It may lead to benefit payment cuts for current and future Social Security retirement beneficiaries.
CARES Act Stimulus Check
When Americans receive their CARES Act stimulus checks starting in mid-April 2020, there won’t be any Social Security income tax (listed as SSI on pay stubs) taken, nor will it be a source of income for the 2020 income tax filing. Additionally, unemployment benefits checks don’t have Social Security income tax taken out either. Both put additional strain on the Social Security Retirement system even though they help Americans during this pandemic. What can you do to help your future Social Security Retirement benefits reduction?
Purchasing an Annuity
Consider Purchasing an Annuity. An annuity is a contract with an insurance company that provides a guaranteed stream of income in retirement. You can’t outlive an annuity. With the possibility of future Social Security Retirement Benefits cuts, an annuity can take the place of fixed, guaranteed payments, regardless of future economic impacts such as today.
Additionally, ask your financial advisor to remove Social Security as a source of retirement income from your financial plan. If you do receive benefits, you’ll be happy about the bonus!
Disclosure: Any guarantees are backed only by the claims-paying ability of the issuing insurer.
As a retirement income specialist and 38-year veteran of the financial services industry, August H. Velten understands what his clients need in order to enjoy a comfortable retirement. Augie is a former instructor for the Life Underwriter Training Council. He once occupied the legislative seat for the Maine Association of Life Insurers. At August H Velten & Associates, we know that it is your retirement, and you should have control over it. We offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!
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