Among many other ways the coronavirus pandemic is affecting the economy, it’s possible that the virus could wipe out Social Security beneficiaries’ checks next year.
Social Security Disability (SSD) recipients typically anticipate a potential benefit every year that is referred to as a cost of living adjustment (COLA). However, the increase is based on inflation, which the pandemic has decreased.
The Senior Citizens League analyzed the consumer price index data up through April to gauge inflation. The organization concluded that the estimated cost of living adjustment in 2021 to stand at 0, a decrease from 1.6 percent in 2020.
Predictions for Worse Demand
The COVID-19 pandemic and subsequent international lockdowns in place have had an impact on supply and demand. Subsequently, stay-at-home orders and social distancing in place have led the Federal Reserve Bank of San Francisco to predict that demand will worsen, which will in turn result in price reductions.
However, predictions for costs could change before 2021, potentially leading to changes in COLA predictions before the Social Security Administration announces the 2021 COLA in October.
In 2020, the average monthly benefit for retired workers rose to $1,503 per month.
However, to help counter the COLA wipeout, the Senior Citizens League also revealed in a recent report that 2020 saw a three-percentage-point increase in benefit buying power compared to 2019. This indicates that a majority of retirees have likely seen certain price reductions in various items including goods and electric bills, among others that make for a more affordable cost of living.
On the other hand, the purchasing power of benefits for the last two decades has seen a total loss of around 30 percent.
Impacts on Overall Funding
In addition to potentially wiping out COLA, the pandemic is also putting funding for disability insurance programs at risk, according to a recent report from the Bipartisan Policy Center. The report looked at the overall impact that the pandemic had on the program’s finances, predicting that reserve would run out by 2029 for both the disability and old-age insurance programs.
One of the reasons why the program is at risk is because, with so many businesses forced to close along with the surge in unemployment, payroll tax revenue has decreased. Subsequently, Social Security and Medicare have lost the funding that they would normally receive through payroll taxes.
These predictions for COLA and disability insurance may not be optimistic, but keep in mind that they are subject to change before 2021 arrives.
