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What's Ahead for Social Security?

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February 14, 2021

What's Ahead for Social Security?

Social Security is a complicated and controversial subject. Its importance cannot be understated, being the sole income source for 40% of elderly Americans and relied upon for a substantial portion of retirement income by many more.

It is no secret there are issues with Social Security. The latest projection is that the Trust Fund will be depleted in 2033 and, unless actions are taken by Congress to shore up the system, benefits to all recipients will have to be reduced by over 20%. But Congress has been slow to address the issue because it is so politically charged. It has always been so. In fact, in the early 1980's, Tip O'Neill, the Speaker of the House at the time, dubbed Social Security the "third rail of politics".

President Biden has proposed plans for Social Security. They do not address the long- term solvency of the program. Rather, they expand benefits, particularly for specific lower-income groups of people who are believed to be most in need. Funding the additional benefits would be accomplished by collecting Social Security from higher income earners.

Here are the details of the Biden plan:

  • For low-wage earners - increase the minimum payment to 125% of the federal poverty level. This means the minimum monthly benefit, calculated using 2021 figures, would be $1,341 versus rather than the $896 currently.
  • For surviving spouses of dual-earning couples - ensure they would receive at least 75% of the combined amount they were receiving as a couple. Currently, the surviving spouse receives the higher benefit, and the lower benefit is eliminated. This is intended to compensate for the fact that expenses for a surviving spouse tend to be much more than half of their expenses as a couple.
  • For caregivers (people who care for children under 12 and for family members with disabilities at least 80 hours per month) - SSA would credit them with earnings equal to half the average national monthly wage index in addition to their actual earnings. This would enable them to qualify for or receive a higher benefit amount in the future.
  • For long term recipients - once a person has been receiving benefits for 16 years, their benefit would increase by 1% per year to a maximum of 5% after receiving benefits for 20 years. This is designed to cover some of the higher costs of health care and transportation older beneficiaries tend to incur.
  • For some government workers (people who receive pensions from work in "non-covered jobs" (i.e., jobs for which social security is not collected) - no longer reduce their benefits by the Windfall Elimination Provision (WEP) and not reduce their spouse's benefits by the Government Pension Offset (GPO).
  • For all recipients - the measure used to determine the annual cost of living adjustments (COLA) would change from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E). It is estimated it would increase the COLA by .2% per year and is intended to reflect the higher health care and transportation costs incurred by older people.
  • To pay for the increase in benefits and provide a short-term extension of the trust fund, Social Security would be collected on earnings over $400,000 in addition to the amount collected at the regular earnings limit, which is $142,800 in 2021. This would delay the depletion of the trust fund by five years.

In the coming years, Congress must address the long-term future of Social Security. The reality is that changes are necessary before the trust fund is exhausted. There are several proposals already being discussed.

I think a combination of a few relatively "painless" changes will be implemented when the situation reaches a near crisis level, and that the amounts received by current and soon-to-be recipients will not be affected much, if at all. So, if you are in those age groups, I believe there is no reason for you to worry. What foolhardy congressional member would go near the "third rail" and mess with the social security benefits of their older constituents when they tend to vote in great numbers?

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About the author

a man wearing a suit and tie smiling at the camera

Steve B. Goldstein

Vice President, Private CFO®

Steve Goldstein is a Vice President, Private CFO® with oXYGen Financial, Inc., and is based in Alpharetta, Georgia. He is an 18+ year veteran of the financial services industry whose specialty is retirement income planning and whose mission is to help people live the best life possible during their retirement by making sure their finances provide for their needs and their wants all the way through their lifetime.

Steve holds the Certified Financial Planner, Chartered Retirement Planning CounselorSM, and the Retirement Income Certified Professional® designations. His background also includes an MBA degree in Finance and Accounting from the University of Rochester and a BA degree in Business Economics from The State University of New York at Oneonta.

Steve was born and raised in the Bronx, NY and moved to the Atlanta area in 1994 with his wife, Beth, and two children who are now responsible adults with families of their own. In his spare time, Steve enjoys watching sports, exercising regularly, playing classic rock and blues guitar, and tackling home improvement projects.

Background and qualification information is available at FINRA's BrokerCheck website.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

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