Pandemic Causes Surge in Social Security Beneficiary Deaths

Nearly 400,000 more Social Security beneficiaries died in 2020 than in 2019 according to newly released information, highlighting the devastating impact the COVID-19 pandemic had on elderly and disabled and/or immunocompromised Americans in particular.

The data tabulated by the Social Security Administration shows a 17% increase in 2020 beneficiary deaths compared to 2019, according to an Aug. 24 opinion piece on The Hill by David A. Weaver, Ph.D., an economist and retired federal employee who has authored a number of studies on Social Security.

The data show double-digit percentage increases, year-over-year, for all beneficiary groups including retirees, spouses, widows, and the disabled. A relatively small beneficiary group (Disabled Adult Children) had the highest percentage increase (26%) in the number of deaths from 2019 to 2020. These adults that have been disabled since childhood are subject to specific conditions or circumstances that make them particularly vulnerable to COVID-19, such as residing in long-term care facilities.

Weaver points out that federal researchers, who have access to the raw data, could potentially unlock death patterns in the data that would help policymakers understand the probable effects of COVID-19 on groups with different disabling conditions and socioeconomic status.

Beyond research, and perhaps of more importance, Weaver said, the new data highlight the need for the Biden Administration to communicate with Social Security beneficiaries regarding developments in vaccine policy.

“For example, the CDC recently developed new recommendations about vaccines for immunocompromised individuals. Many of these individuals will, no doubt, be on SSA’s disability rolls,” Weaver said, adding that some effort to communicate with these beneficiaries about the new guidelines would be in the public’s interest.

The Center for Disease Control’s (CDC) mortality data, which includes all individuals and not just Social Security beneficiaries, show about 500,000 more deaths occurred in the U.S. in 2020 than in 2019. The CDC estimates approximately 375,000 deaths in 2020 were due to COVID-19.

While it admittedly feels awkward and petty to think about the financial effect on the Social Security trust funds in light of the hardships so many families are experiencing due to ongoing pandemic-related deaths, it remains a consideration nonetheless.

Could the pandemic actually improve the long-term solvency of the Social Security trust funds? Short answer: unlikely.

The increased mortality rate (skewed towards those of retirement age) reduces total benefits paid out of the trust fund, but the impact is offset by any number of factors, including an increase in Social Security benefit applications from people who lost jobs or retired earlier than anticipated due to the pandemic.

Other potential factors at work include:

Reduced earnings by workers (fewer people working fewer hours), meaning less is being contributed into the system via payroll taxes. While the release of the 2021 Social Security Trustees Report remains long overdue, SSA Chief Actuary Stephen Goss told Congress in July of last year he estimated earnings and contributions to the payroll tax would be down by 10% in 2020.
Slower economic growth could more than eliminate any financial gains due to increased death rates. While increased mortality rates reduce trust fund liabilities, they also reduce the size of the labor force and economic growth rates.
Currently, the 2022 Social Security Cost of Living Adjustment (COLA) adjustment is on track to be right around 6.2% percent next year—which would be the highest in almost four decades and more than four times higher than the 2021 COLA increase of 1.3%. Such a large year-over-year COLA increase will put a big dent in the trust fund.
Initial Social Security benefits claimed by new beneficiaries may fall due to two factors: (a) depressed earnings history of beneficiaries, many of whom lost their jobs; and (b) a reduction in the Average Wage Index (AWI) factor that is applied to initial benefits. According to the most recent Wharton Penn Budget Model on the topic, a smaller AWI reduces benefits even for near retirees who maintain their employment during the pandemic.
An ironic possible consequence of higher mortality over the short term: Increased life expectancy over the longer term. According to a Sept. 2020 Issue Brief from the American Academy of Actuaries, it’s plausible that the COVID-19 pandemic disproportionately impacts those who are already in poor health, so any increased mortality is concentrated among those who were most likely to die in the near term in the absence of the pandemic. That means the remaining population would be less likely to die, leading to lower rates of mortality in upcoming years after a short-term increase. As a MarketWatch piece pointed out, that would in turn “cause Social Security and pension plan liabilities to grow—not shrink.”

Much more light could be shed on this subject via updated figures when the 2021 Social Security Trustees Report finally gets released by the Treasury Department. That annual report, which is now nearly five months overdue, will include a much-anticipated update on the current state and long-term viability of the Social Security trust funds.

Depletion of the trust funds (forecast to happen by 2035 in the 2020 Trustees Report), unless Congress acts, would lead to about a 20% reduction in annual payments to beneficiaries.

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Brian Anderson

Editor-in-Chief at 401(k) Specialist | banderson@401kspecialist.com | + posts

Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.