The Trump Administration has repeatedly expressed support for a second COVID-19 stimulus payment, which is good news for those hoping for more government money to help them cope with the 2020 recession. Unfortunately, the President’s most favored proposal for coronavirus stimulus money would provide no help at all to the vast majority of Social Security retirees. Here’s why.
This is what the Trump Administration wants to do
President Trump has expressed some support for a variety of different stimulus proposals, including a plan to offer tax credits for travel. But the plan he’s been most consistently in favor of is a payroll tax holiday. In fact, the President has long urged Congress to reduce payroll taxes temporarily or even eliminate them entirely. He’s even gone so far as to say that he won’t sign another coronavirus stimulus bill that doesn’t slash these taxes.
Vice President Mike Pence has also emphasized that the Administration wants to put more money in Americans’ pockets by cutting their payroll tax costs, indicating in a recent interview that a reduction in payroll taxes is a “pro-growth” policy that must find its way into the next coronavirus relief bill.
Unfortunately, if the next coronavirus stimulus takes the form of a payroll tax cut, it would leave most Social Security retirees with little or no help at all. Payroll taxes are collected only on wages and salaries that workers and the self-employed earn, however, most retirees rely on income from Social Security, pensions, and investments — none of which are subject to payroll taxes.
In fact, studies have shown that fewer than 3 in 10 retirees work for money. Social Security actually discourages employment for younger retirees (who are most likely to be able to hold jobs) by reducing benefits for those who earn too much if they’re under full retirement age. Due to the coronavirus pandemic, unemployment is also higher among older workers, so even those seniors who were working before the crisis are less likely to be helped by the Trump Administration’s preferred plan.
And many of the jobs held by the elderly tend to be relatively low-paying, so a cut to payroll taxes won’t help them as much as it would higher-earning full-time workers who pay more in payroll taxes.
As if that’s not bad enough, seniors could actually be hurt by a payroll tax cut, as these taxes are a key source of Social Security revenue — so starving the program of this money might mean Social Security’s trust fund runs dry sooner than expected, necessitating a reduction in retirement benefits this decade.
Retirees need financial relief, but may not get it
Millions of retirees on Social Security have faced adverse financial consequences due to COVID-19, with some experiencing a decline in investment accounts. Additionally, every senior getting benefits is at risk of receiving just a small cost of living adjustment or none at all next year.
If the Trump Administration gets its way and the second COVID-19 stimulus comes in the form of payroll tax cuts, most retirees will be left to cope with the financial consequences of the coronavirus on their own. To do that, make sure you’ve adjusted your withdrawal rate from investment accounts if you suffered losses. If you took a required minimum distribution this year and don’t need the money, you now also have the option to put it back and avoid the taxes normally due. You should also make sure you have liquid cash available so you don’t need to sell investments in case of another market crash.
It’s unfortunate that seniors may have to make some extra financial sacrifices to cope with COVID-19 if they’re left out of the second round of stimulus money, but it’s still essential to be prepared in case this reality comes to pass.
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