15 Mar Is Social Security healthier now that life expectancy dropped with COVID?

Q. Since life expectancy in the United States has dropped with COVID, why do they say that Social Security will run out of money?
— Not retired yet

A. Thanks for your question.

The answer is complicated.

Life expectancy in the U.S. increased 78.8 years in 2019, according to the Centers for Disease Control and Prevention (CDC). For 2020, it decreased to 77.0 years, the CDC said. COVID was the third leading cause of death in 2020.

When Social Security was set up to pay benefits at age 65, average life expectancy was 63, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

The average person was not supposed to receive benefits, he said.

“Now the average person would receive benefits for 10 years and many are living much longer,” he said.

There are several items having a negative impact on the health of Social Security, Lynch said.

“With COVID- many people just said `I’m out’ and retired earlier than expected over the past two years,” he said. “People are living too long. Baby Boomers are retiring during this period and there are a lot of them. The system was never designed to pay out for that long.”

There are also fewer younger workers paying into the system, he said.

Then there’s the Social Security Trust Fund, which must be invested in “Special Issue” treasuries. It does not benefit from long-term stock market growth,” Lynch said, noting that politicians don’t want to touch this “political hot potato.”

Lynch offered several ways the system could be improved, including indexing the full retirement age better for today’s life expectancy and increasing the wages people pay Social Security tax on, which is currently capped at $147,000 of income.

They could change the benefit calculation formula from being based on 35 years of working experience to 40 years or more, or reduce cost-of-living increases or reduce benefits for retirees who are at certain income levels.

“The major problem here is that all the solutions involve pain, that is either more taxes, reduced benefits or working longer,” Lynch said. “This is a very important issue that I do feel needs to be addressed and small changes will not have a very large impact long term.”

The government could step in, but for now, we’re just “kicking the can down the street and having our kids pay for us.” he said.

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This story was originally published on March 15, 2022.

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