The coronavirus pandemic has disrupted our lives and dealt a major financial blow to millions. But there’s at least a little bit of good news for recipients of Social Security or those who are about to start receiving it. You’ll continue to receive your monthly check just as you normally would.
And for many Social Security recipients — they’re also eligible for a stimulus plan payment as part of the recently passed CARES Act. Whether they receive the full amount depends on certain income thresholds: an adjusted gross income of $75,000 for single filers and $150,000 for married filers with no children. The stimulus amount declines above those thresholds and stops completely at $99,000 and $198,000, respectively.
But from there, the situation gets murkier. With the economy heading towards a recession, growth in future Social Security payments is likely to decline, as inflation decreases. So the annual raise that recipients often see – the 2020 cost of living adjustment (COLA) increased benefits 1.6 percent for example – may fall or even disappear entirely in 2021.
Social Security is affected in other ways, too, some of which may harm the long-term effectiveness of the program, according to some experts. Here’s what you need to watch out for, including how legislation to combat the economic effects of the coronavirus may affect you.
No changes to Social Security for now, but watch out for scams
“There have been no announced changes to Social Security benefits as a result of COVID-19 and the related stimulus package,” says Justin Lavelle, communications director of BeenVerified.com, a company that accesses public records to verify backgrounds.
It’s important that taxpayers understand that there have been no changes, because scammers may run rampant on seniors. Seniors may fear losing their benefits or not understand the current crisis situation, especially as the government sends checks as part of a relief package.
“Social Security-related scams have been the top consumer phone complaint since 2019, and the stimulus relief checks will likely provide a fresh angle for these scam artists to attempt to exploit,” says Lavelle.
Lavelle also notes that the Social Security Administration warned about this recently, “because they realize how often Social Security recipients are targeted.”
So it’s important to watch out for scammers who are looking for your information or money, especially as fear may override your better judgment. (Here are three common scams to avoid.)
Long-term impact on Social Security benefits
While recipients may not worry much about benefits today or next year, Social Security may become more strained longer term, due to the ways in which the government is responding to the crisis and shifting funding.
“With many states passing ‘shelter in place’ guidelines restricting non-essential employees to their homes, there are many individuals that are being laid off or possibly even losing their jobs,” says Ryan Monette, a financial adviser with Savant Capital Management.
“An individual’s Social Security retirement benefits are a result of that individual’s earned income,” he says. “If there is a loss of income one could argue that their future Social Security retirement benefits will be lower.”
Monette also points out the loss of income to the Social Security Trust Fund due to lower receipts, since many workers are out of a job. (Here’s what to do if that’s happened to you.) That may create solvency problems down the road for the program, especially if the coronavirus crisis deepens.
Another issue is how Congress funds some of the relief programs as part of the CARES Act.
“The CARES Act, in general, left Social Security benefits alone, but did expand out Medicare and Medicaid to cover more COVID-19 related medical costs,” says Jamie Hopkins, director of retirement research at Carson Group.
Hopkins says the bigger effects of the legislation will occur longer term, especially for FICA payments, those payroll taxes used to fund Social Security and Medicare.
“The CARES Act gave really beneficial cash flow relief to businesses by allowing employers to push off their FICA payments. This is a big deal for businesses,” he says. The law allows firms to defer FICA taxes of 6.2 percent on up to $137,700 of an employee’s 2020 income. Half of the deferral becomes due at the end of 2021 and the remainder by the end of 2022, Hopkins says.
“The Social Security Trust Fund will be backfilled by general revenue during this time period,” he says. “However, when you look at less income coming in overall, and less people paying into Social Security, the longevity of the system will get stressed again.”
Be careful to avoid triggering higher taxes
As part of the CARES Act, Congress is suspending required minimum distributions on retirement accounts such as a 401(k) or a traditional IRA for 2020, allowing retirees to avoid selling assets at a low price and giving them time to rise again. But if retirees do tap a retirement account due to extra expenses, their Social Security check could be taxed at a higher amount.
“You’ll be taxed on up to 50 percent of your Social Security benefit, if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly,” says Michael Foguth, founder of Foguth Financial Group.
Tap a retirement account too much, though, and Foguth says that the taxable amount of your Social Security will rise: “Up to 85 percent of your benefits will be taxed if your income is more than $34,000 (for individuals) or $44,000 (for couples).”
So those who do need to take emergency cash might try to watch out for these limits, if they can.
While Social Security benefits should continue to flow unabated, the responses to the crisis are not without costs to the longer-term health of the public retirement system. Seniors and other recipients of benefits should be aware of how their own financial situations may change, while watching out for those who might be trying to take advantage of them during a crisis situation.