3 Ways the Coronavirus Will Affect Social Security

In just a matter of weeks, the coronavirus disease 2019 (COVID-19) has changed the world.

Although initial instances of this illness originated in Wuhan, within China's Hubei province, there are an increasing number of positive COVID-19 confirmations being made well beyond China's borders. Italy is on lockdown, South Korea has been operating drive-thru coronavirus testing sites, and the United States has banned inbound travel from Europe for a period of 30 days. Mitigation tactics that seemed almost unimaginable weeks ago are now a reality.

The fact is that the coronavirus is going to impact almost everything to some degree, and that includes the most successful social program in our nation's history: Social Security.

Don't worry, though. If you're one of the 64 million people currently receiving a Social Security benefit payout each month, you'll continue to do so on an uninterrupted basis. Likewise, Social Security isn't going bankrupt, so push those negative thoughts out of your head.

However, the mitigating actions being undertaken nationwide to slow the spread of this novel coronavirus are going to have tangible impacts on the Social Security program. Here are three changes you can expect.

Two Social Security cards lying atop fanned piles of cash.

Image source: Getty Images.

Lower payroll tax collection for Social Security

The most broad-reaching effect on the program this year will likely be lower-than-expected payroll tax collection.

The payroll tax is a 12.4% tax on earned income, which includes wages and salaries but not investment income. In 2020, the payroll tax is applied to all earned income between $0.01 and $137,700, with any earnings above $137,700 exempt. Because we're seeing large-event shutdowns, as well as employees working remotely, there's liable to be a trickle-down effect that sees workers earn less income this year unless a significant paid-leave policy is passed by the federal government. Less income earned means there'll be less payroll tax revenue collected by the program.

That's bad news for two reasons. First, the payroll tax is Social Security's workhorse. It was responsible for generating $885 billion of the $1 trillion collected in 2018, with the taxation of benefits and interest income earned on Social Security's asset reserves combining for another $118 billion. Any significant hit to payroll tax collection would fundamentally weaken Social Security.

Secondly, the Social Security Board of Trustees has predicted that 2020 will be the first time since 1982 that the program will expend more than it collects. This net-cash outflow was only pegged to be around $4 billion in 2020, which is peanuts compared to Social Security's $2.9 trillion in asset reserves. But if mitigation efforts seriously impact the earning capacity of working Americans, we could see a much larger net-cash outflow this year.

A visibly concerned mature couple looking over financial statements.

Image source: Getty Images.

A strong likelihood of a reduced COLA in 2021

Perhaps the most direct effect the coronavirus might have on Social Security is on its cost-of-living adjustment, or COLA.

Social Security's COLA is the "raise" that beneficiaries receive from one year to the next that's meant to account for the inflation they've faced. I say "raise," with quotation marks, because it's not designed to be a raise in the traditional sense of the word, but rather to keep benefits on par with the rising price of goods and services.

The program's COLA is determined by comparing the average third-quarter reading (July - September) of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the current year to the average third-quarter reading of the CPI-W in the previous year. If the CPI-W reading increases from one year to the next, beneficiaries receive a positive COLA that's commensurate with the percentage increase and rounded to the nearest tenth of a percent. And if the CPI-W reading declines from one year to the next, no COLA is passed along and benefits remain static in the upcoming year.

There are numerous spending categories that factor into the CPI-W. While we had been witnessing a reasonably healthy bump up in inflation with regard to shelter, medical care, and food costs in recent months, energy prices have fallen through the floor as crude oil demand has plunged. Considerably weaker energy prices, compounded with recessionary fears, could very well result in a low or nonexistent COLA for beneficiaries in 2021.

The facade of a Social Security Administration office.

Image source: Getty Images.

Limited in-person assistance from SSA employees

Lastly, at a more local level, it's very likely that beneficiaries' interactions with Social Security Administration (SSA) employees may differ in the weeks or months to come.

Just as businesses have been mandating that their employees work from home if they're able to, the SSA has pushed its employees to work from home if they can. Further, the agency's "work at home quarantine" option allows those SSA employees who are at higher risk for the coronavirus -- such as those who are elderly, have underlying health conditions, or are pregnant -- to work from home.

The SSA has also notified its employees that office closures may become necessary, depending on the spread of COVID-19 within certain cities, counties, and states. If this becomes necessary, the SSA expects employees to work from home. 

The point is that in-person interaction with SSA employees may be limited for the foreseeable future. The good news is that current and future beneficiaries can do quite a bit through the SSA's online portal. By signing up for a "my Social Security" account, folks can apply for Social Security retirement benefits, spousal benefits, or disability income benefits, change their address, check on the status of an application or appeal, and so much more. You should also still be able to reach an SSA employee by phone.

The coronavirus is changing the world, and Social Security in the U.S. will be no exception.

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