There's now an acceleration of what happened during the Great Recession a decade ago, when there was a 5 percent bump in eligible adults claiming Social Security an average of six months early. At the same time, soaring unemployment meant the government was collecting less in payroll taxes. The Obama administration estimated at the time that the fund would run out of money in 2037 — four years faster than expected before the financial crisis.
Today, the unemployment rate has already blown past the 10 percent peak logged during that recession, to 14.7 percent as of mid-April, according to data released this month. And some economists think it could climb as high as 20 percent. It’s estimated that 1 in 10 Americans still won’t have a job well into next year.
At least 36.5 million people aren’t paying payroll taxes into the program right now, and a second surge in early retirements is expected. Social Security benefits can be collected at the age of 62, though there is a penalty for not waiting until full retirement age.
Without accounting for the pandemic and the ensuing financial downturn, the federal government estimated last month that the program can fully issue benefits until 2035. At that point, only 76 percent of benefits can be paid out.
“It’s clearly going to be a lot worse than that,” said Alan Auerbach, an economist at the University of California, Berkeley.
Brent Orrell at AEI:
A recent working paper from the University of Chicago’s Becker Friedman Institute finds that the unemployment rate has not risen to levels that would correspond with the numbers of jobs lost. Through surveys conducted earlier in 2020 and again at the height of the pandemic, they found that some of those who lost jobs have not been counted in the BLS unemployment rate because these workers have dropped out of the labor force. Furthermore, a striking percentage of these former workers cited retirement as their reason for not seeking additional work, rising from 53 percent in the first survey to 60 percent in the follow-on survey. The authors believe that these retirements are likely earlier than originally planned, given the age range of the participants.
A unique feature of the current recession is that health officials have been warning the public for months that older people, and especially those living with underlying health conditions, are more at risk of developing more serious forms of the disease than their younger, healthier counterparts. Anxiety about the disease and lower rates of telecommuting might be combining to encourage more early retirement.