“Historically, we have used the most recent Trustees Report’s intermediate projection as our baseline for evaluation of legislative proposals until the next Trustees Report is issued. However, we are in an unprecedented year. The sudden arrival of the pandemic and the ensuing precipitous recession clearly are having effects on the actuarial status of the OASI and DI Trust Funds. We have been evaluating those effects, and on November 16 the Social Security Administration released publicly what is effectively an updated actuarial valuation by the Office of the Chief Actuary in the Agency Financial Report (AFR) for Fiscal Year 2020.“
The annual Social Security Trustees’ report, released this year in April, serves as the baseline for determining Social Security’s overall health and longevity from year to year. It tells us how much is coming in, how much is going out, and gives us the data we need to intelligently project how long the program will last under current benefit and contribution formulas.
This year’s Trustees Report fell under more scrutiny than usual. It was published at the beginning of the pandemic as we were experiencing the first taste of job loss, business closures, and commodity shortages. A significant number of businesses were not able to conduct business, and unemployment spiked. When employers’ doors are shuttered and their employees aren’t making an income, neither are contributing payroll taxes to the Trust.
Adding to fears that Social Security would be starved of funding, it was anticipated a rise in unemployment would result in increased Social Security claims. Now we know there are many people who have filed for early retirement and disability in order to reclaim lost income.
Unfortunately, the Trustees Report was created prior to our expected economic woes. It makes no mention of the pandemic and is based on employment and retirement trends from before the entrance of COVID-19. According to that report, almost nothing has changed. Social Security is still on track to be depleted by 2035.
After nearly a year of sustained economic damage, it’s difficult to believe this could be possible. The absolute last thing Social Security needs right now is a decrease in contributions, but that’s exactly what’s happening.
And as of today, there’s no end in sight. Despite the development and initial rollout of a vaccine, several states and countries are reinstating or extending lockdown measures as cases surge. There’s just no knowing when we’ll truly return to business as usual.
Considering these factors, the Chief Actuaries have made the unusual move to release a second updated report. This report adjusts the baseline assumptions with considerations made to how the pandemic is affecting money flowing in and out of Social Security.UpdatedBaseline_20201124
Since the initial Trustees Report earlier this year, several think-tanks, Social Security advocacy groups, and budgetary analysts have attempted to create Social Security status models accounting for pandemic trends. We’ve examined a few of them, and unsurprisingly, most of them projected a reality far less optimistic than the original Trustees Report.
Most recently, we took a look at the Congressional Budget Office’s report speculating the pandemic’s impact would set Social Security back four years. Their estimation would mean Social Security would reach full surplus depletion by 2031, well within the lifetime of many of today’s retirees.
Far more pessimistic estimates set that date at 2028, just seven years from now.
But now we have the adjusted projections from those who know the program best. So what do the Chief Actuaries have to say?
Well, it’s certainly not good news, but considering how catastrohpic many groups’ projections were, it’s definitely not all that bad, either.
This new pandemic-focused projection rests heavily on an assumption that the U.S. Gross Domestic Product will rebound between 2021 and 2024. Though it projects the GDP will in general be 1.9% lower in the long term than it would have been without the pandemic, it’s not near as calamitous a picture as was painted by others.
And if you’re wondering if this isn’t just an overly optimistic outlook, the Federal Reserve seems to echo these assumptions.fomcprojtabl20201216
According to the Federal Open Market Committee’s estimations, the GDP will be only 0.3% lower than what the Chief Actuaries are projecting. Obviously these are only our best guesses and nothing is set in stone, but having two independent agencies arriving at similar conclusions is worth noting.
What this projection about the GDP amounts to, according to the Chief Actuaries, is the pandemic not removing as much time from the insolvency clock as we might have thought. They estimate COVID-19’s impact will bring Social Security’s depletion date to 2034, removing just one year from the clock.
As we said, this isn’t exactly reason to celebrate. We still don’t have a plan in place to divert insolvency whether it happens in seven years or 13. Any amount of time we lose before we have that plan is bad. But, at the very least we are starting to have some solid analysis about what the future may hold—and that analysis is telling us we won’t have the rug completely ripped out from underneath us.
Ultimately, time will tell. But for now, we can maybe just breathe easier for a few minutes knowing at least ONE thing this year isn’t going to surprise us in the worst way possible.