Social Security will be unable to pay full benefits starting in 2034 because of the impact of the Covid-19 crisis, according to a new report from the program's trustees.

The report moved up by one year the date for the depletion of Social Security's reserves, while Medicare’s depletion date remained 2026, the same as trustees forecast last year, according to the report, which was released yesterday.

"The finances of both programs have been significantly affected by the pandemic and the recession of 2020," the trustees said.

In the meantime, the trustees said that recent increases in inflation mean the cost-of-living adjustment (COLA) for 2022 will approach 6%, a significant jump from the 1.3% COLA awarded this year.

Inflation is also expected to impact Medicare Part B premiums for outpatient coverage, which are projected to rise by $10 a month in 2022, to $158.50 under the report's intermediate assumptions.

The new report, which has been delayed by the Treasury Department for a number of months, represents the government's effort to assess the impact of last year's pandemic and recession on the financial health of the two big benefit programs.

When the Social Security trust fund is depleted, the government will still be able to pay 78% of scheduled benefits, the trustees reported.

“Social Security beneficiaries would still get 78% in 2034 even if Congress does nothing at all,” Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, told Financial Advisor magazine.

“There are so many variables that can be adjusted that can extend the longevity of the system for decades, it’s just going to take that shock of the possibility that benefits will be reduced to get lawmakers to act,” Shedden said. "I do not think retirees will allow their benefits to be reduced by 24%."

The AARP is busy lobbying Congress to ensure the organization, which represents 38 million members, has a seat at the table whenever legislation is introduced.

“Any discussion about Americans’ earned benefits demands public input and a full and open debate,” AARP CEO Jo Ann Jenkins said in a statement. “Some proposals in Congress would instead give a handful of lawmakers the power to propose cuts to Social Security and Medicare behind closed doors with minimum transparency and oversight from citizens. All members of Congress should be held accountable for any action on Social Security and Medicare."

An April 2021 AARP survey found overwhelming, bipartisan opposition to cutting Social Security and Medicare benefits to pay down the deficit.

“The fact that this might happen in 10 or more years doesn’t negate the fact that investors should still be planning now how to best maximize their Social Security benefits,” Shedden warned. “We can analyze the possibility of this type of decrease in 2034 along with all their other personal data to show investors how to take the maximum benefit over their lifetime. If the Social Security benefit is going to be cut, it will be cut whether you take Social Security early or not.”

Leon LaBrecque, chief growth officer at Sequoia Financial in Akron, Ohio, said that most clients ask him if Social Security “will be there for me?” They’re not surprised that the system is out of money, he said. “I think most people have heard that narrative for a long time. I remember Carter, Reagan and Clinton all hailing that they had saved Social Security,” LaBrecque said by email.

“Does the news change the discussion? No, because I tend to think that doing anything to Social Security benefits is a proverbial third rail for politicians. Does it worry me? Yes, along with the probable 6% increase in benefits this year and the other tiny little $5 trillion deficits floating around. Inflation is a worry,” he added.

Nadine Marie Burns, president and CEO of A New Path Financial in Ann Arbor, Mich., said the frailty of the funds “is worrisome to all clients as we attempt to create a retirement roadmap for them, especially women who are more dependent on Social Security for a majority of their retirement income.”

Burns said she doesn’t believe it when people say “they aren’t planning on Social Security being there in retirement. How can you not plan on an income stream of about $2,000 a month unless you are very affluent? Most Americans have not saved enough for retirement and need this benefit,” she said.

Joseph T. Trimble, a financial advisor with Savant Wealth Management in Leesburg, Va., said he works with clients to ensure they take the opportunity now to prepare for the retirement, but believes Congress will eventually act to fix the program.

“A change in one of the following may render the system solvent: increase the Social Security tax percentage (currently 6.2%), increase the taxable wage base ($142,800 for 2021) or increase the full retirement age (age 62 for those born in 1962 or later). I think it is likely that we will see some combination of change in each of these areas,” Trimble said by email.