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As the Covid crisis took hold in early 2020, budget experts feared that the rapid disappearance of jobs and falling tax revenues could seriously jeopardize Social Security finances. But according to Kate Davidson of the Wall Street Journal on Friday, the pension and disability system is coming out of the recession in better shape than experts feared.
Before the pandemic hit, Social Security administrators estimated the system would deplete its reserves by 2035. In light of the Covid recession, administrators updated their estimate last fall and advanced this date of one year, to 2034.
Other projections were more pessimistic. The Bipartisan Policy Center, for example, said Social Security trust funds could dry up five years earlier if the recession proved to be as long-lasting and damaging as that of 2008-2009, resulting in a 25% reduction in benefits for retirees. and a 13% reduction for people with disabilities.
Today, however, BPC estimates that the cumulative effect of the Covid recession will be more modest, but will still result in a loss of one or two years in the life of the trust funds. Social Security administrators are expected to release a new estimate that also incorporates the most recent economic data, but have delayed the update which usually comes in April as they gather more information.
What happened? Jobs have rebounded much faster than last time, with two-thirds of jobs lost during the pandemic having already recovered. In comparison, it took about four years to get to this point after 2009. Additionally, disability claims declined in 2020, unlike what usually happens in a recession, perhaps due to the increased difficulty of going to social security offices to file a claim. claims, as well as the closure of many facilities.
The bottom line: Although there was a great risk of serious harm, Social Security trust funds survived the Covid crisis in better form than expected. Still, the system faces serious long-term financial challenges, which Congress seems in no rush to address.
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