The Coronavirus Pandemic Threatens Social Security’s Finances

Analysis performed by Sophie Shin and Yan He with the support of additional PWBM staff, under the direction of Richard Prisinzano and Kent Smetters. Prepared for the website by Mariko Paulson.


The coronavirus pandemic has had human and economic costs, with nearly 100,000 total deaths in the United States and more than 36 million new claims for unemployment benefits. The pandemic and policy responses to it will have long-term consequences for the federal budget and economy. The annual Social Security Trustees Report, released on April 22, 2020 relied on a pre-pandemic baseline. This post presents Penn Wharton Budget Model (PWBM) projections of how the coronavirus pandemic will affect the finances of the Social Security program.

Reductions to Revenue

The coronavirus pandemic lowers nominal Social Security revenue in three primary ways. First, the loss of jobs, especially concentrated among low-wage workers, reduces payroll tax revenues. The size of this effect increases with the length of the recession. Second, lower interest rates reduce the interest income received by the Trust Fund. Third, a prolonged period of low inflation reduces earnings for all workers and, therefore, reduces tax revenue received by the Trust Fund.

Reductions to Costs

The pandemic also lowers nominal Social Security costs in three ways. First, the coronavirus increases mortality rates (skewed towards those of retirement age), which reduces total benefits paid out of the Trust Fund. Second, lower inflation reduces the Cost of Living Adjustment (COLA) adjustment to benefit payments. Third, initial benefits claimed at retirement fall due to two factors: (a) depressed earnings history of beneficiaries, many of whom lost their jobs; (b) a reduction in the Average Wage Index (AWI) factor that is applied to initial benefits. The smaller AWI reduces benefits even for near retirees who maintain their employment during the pandemic.

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