Growing Pension and Social Security Concerns Highlight Need for New Solutions for Retirees

The health crisis caused by the Covid-19 pandemic has had an enormous economic impact at the international level in terms of contraction of productive activity, reduction of trade, and job losses. Given the nature and growth pattern of our economy, it is foreseeable that this crisis will have a greater impact on many families and companies and, once the measures for sustaining and recovering activity have been introduced, it will end up being passed on to the Public Sector in the form of higher deficits and debt levels as a percentage of GDP. We are also seeing an underfunding of Social Security, which is set to be unable to meet its obligation by 2034.

This has created a lot of serious concerns for seniors trying to retire. They are going to have underfunded Social Security and pension plans.

As a result, they have to find other ways to make sure that their needs are met. This entails looking at options like reverse mortgages. Seniors that don’t get enough from their pensions or Social Security benefits might find reverse mortgages to be awesome solutions. They will get a monthly payment based on the equity of their home. Unless they sell the home or stop paying home insurance or property taxes, they don’t have to pay reverse mortgage loans back until they die, which means that they can get paid and still live in their home. Reverse mortgages are therefore win-wins for seniors that don’t plan on leaving their homes. You can use a reverse mortgage payment calculator to see if this would be good for you.

Growing Economic Challenges Call for the Need for New Options for Retirees

The logical reorientation of economic policy objectives towards the recomposition of our activity and employment levels to pre-crisis positions must not overlook the main challenges facing the economy. These include the demographic impact caused by the aging of the population and its repercussions on the current Social Security and pension system.

Moreover, the negative impact on the labor market and on public accounts that this crisis is expected to have makes it even more urgent to make decisions and resolve the weaknesses of the current retirement and Social Security system in terms of its financial sustainability, its contributory nature, and sufficiency, as well as its equity.

The confidence that the economy (which can be measured by the consumer confidence index) must project in the current context before our main investors and creditors, as well as the determination of the main consumption, work, savings, and investment decisions that economic agents will make in the coming years, require the most complete and objective information on the forthcoming development of this public social welfare system.

Need for New Solutions

Pension and Social Security Concerns

In this sense, it is necessary to be transparent to the public about the impossibility of sustaining the current parameters of the system, given the existing demographic pressure, without introducing changes that substantially reduce the welfare levels of a large part of the population. The aim of the above is not to question the viability of the current public pay-as-you-go and defined-benefit pension system, but to challenge the public authorities as a whole to take effective action to model a sustainable pension system, without having to continually make discretionary decisions, largely on income, to cover the imbalances and payment needs of the system.

There is a consensus among experts and practically all recent studies on the financial sustainability of pensions, which share the same diagnosis. This is, given the inexorable evolution of the demographic scenario in the medium and long term, the maintenance of current replacement or pay-as-you-go rates, much higher than those of the main countries in our environment, which would require a substantial and unaffordable increase in income, taking into account favorable cycle conditions, in terms of the employment rate and productivity growth.

Pension and Social Security Concerns

Additionally, there are certain financial circumstances for the Public Sector that aggravate this dilemma. In 2019, Social Security has collected approximately 20% more than what was collected in the period prior to the 2008 crisis, when the same level of contributors to the system was barely reached. Expenditure, on the other hand, grew by 53.0% over the same period. The structural deficit of the Social Security system is around 17,000 million euros or approximately 1.3% of GDP. It should be noted that the pension system deficit accounts for approximately one-third of the total structural deficit of the Public Administrations, which is projected to exceed 5.5% over the next few years.

In addition to this initial imbalance in the system, it should be added that, in cyclical terms, the current crisis will raise the public deficit to over 7.0% over the next two years as a whole and the debt of the Public Administrations will exceed 110.0%. The Social Security would not be exempt from this context, so that in terms of the deficit that would be obtained, in the context of current forecasts, would be a minimum of 3.0% of GDP, of which two thirds would be explained by the revenue side and the remaining third by the expenditure component.


Still, the government has recognized these challenges and has implemented new bylaws to accommodate retirees. In March 2020, the IRS added a new section to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that allows rollover rules and special distribution options for retirement plans. This would allow individuals who are qualified to increase the amount of money they can borrow from eligible retirement plans. Qualified individuals would also be given an additional year to repay loans without incurring interest.

There are several ways to qualify for Section 2022 of the CARES Act. If you’ve been diagnosed with COVID-19, have a dependent diagnosed with COVID-19, are experiencing financial adversities due to COVID-19, are unable to work due to lack of available (or affordable) childcare, or are employed by a business that has reduced their business hours due to COVID-19, you may qualify for this section.

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