The coronavirus pandemic could deplete the Social Security program four years earlier than previously predicted, according to a new analysis by the Penn Wharton Budget Model. As the outbreak continues to batter the American economy and increase jobless claims by the millions, revenue into Social Security, which is funded by a payroll tax, has been hard hit. Though the economy is headed toward recovery as states across the country reopen and welcome people back to work and into businesses, recovery won’t be enough to save Social Security.

According to Wharton’s Budget Model, revenue cuts from the pandemic mean Social Security will run out of money by 2032, if there is a “U-shaped” recovery. The term refers to an economic bounce back that happens more gradually after an initial decline.

If recovery is quick, or “V-shaped,” the model projects that the funds in Social Security would run out by 2034 — two years sooner than the Budget Model’s forecast.

Even before coronavirus, experts had long warned that Social Security funds would run out.

In an April 2020 report, the Social Security Trustees highlighted that the fund would be depleted by 2035. Rising costs of living, a growing aging population and increased medical expenses are partly to blame for the fund’s potential shortfall. Though the report was released in the midst of the COVID-19 crisis, its analysis relied on baseline assumptions prior to the coronavirus outbreak.

Prior to the pandemic, the Wharton Model projected that Social Security would run out a year later than the trustees report, in 2036.

Revenue into Social Security has been steadily declining since the start of the coronavirus pandemic in three primary ways, according to the Wharton Model.

“First, the loss of jobs, especially concentrated among low-wage workers, reduces payroll tax revenues,” its analysis explains. “The size of this effect increases with the length of the recession. Second, lower interest rates reduce the interest income received by the Trust Fund. Third, a prolonged period of low inflation reduces earnings for all workers and, therefore, reduces tax revenue received by the Trust Fund.”

Blunting the impact of the depressed revenue is the reduction of costs to the fund, which have been steadily ballooning throughout the years.

“First, the coronavirus increases mortality rates (skewed towards those of retirement age), which reduces total benefits paid out of the Trust Fund,” the model explained.

Low inflation has also reduced the ‘Cost of Living Adjustment’ (COLA) adjustments made to benefit payments. And lastly, initial benefits claimed at retirement have also been reduced due to a lower earnings history of beneficiaries and a reduction in the Average Wage Index (AWI) that is applied to initial benefits.

Social Security benefits are indexed to the AWI, which is the average wage of each worker each year.

“The smaller AWI reduces benefits even for near retirees who maintain their employment during the pandemic,” the analysis stated.

Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

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