Updated: Dec 18, 2020
Year after year it seems that Social Security is weaponized for political purposes. The
Social Security system is under distress for many reasons but mostly due to an
avalanche of retiring baby boomers.
As the population ages, fewer workers are paying into the system and the share of
beneficiaries receiving benefits is increasing and putting strain on the solvency of Social
Security and Medicare.
With the Biden administration set to take over and most likely a split congress for the
next two years, where does the Social Security Trust fund stand today and is now the
time for the types of common sense bipartisan solutions our country desperately needs?
SOCIAL SECURITY & MEDICARE TODAY
In 2021 Social Security is expected to begin drawing down its trust fund to cover
benefits instead of tapping only the interest.
At this rate, the trust fund is set to deplete in 2033 and without congressional action,
benefits could be cut at least 20% when the fund runs out. Due to the pandemic and
recession, this is two years sooner than previously projected according to the Center for
Retirement Research at Boston College.
Despite the trust fund being depleted, there will still be benefits to be paid out because
workers continue to add money to the Social Security system through payroll taxes.
Medicare is on shakier ground. According to the Congressional Budget Office, Medicare
Part A (hospital insurance) will run out of money in 2024, two years ahead of previous
If the Supreme Court overturns the Affordable Care Act (ObamaCare), the program will
become insolvent almost immediately.
BIDEN’S VISION FOR SOCIAL SECURITY BENEFITS
Democrats and Joe Biden would like to expand Social Security. They propose raising
benefits for those who need it most, low wage workers, surviving spouses, caregivers
and those that have collected benefits the longest.
In addition, benefits for other groups would remain the same with one major change.
Biden proposes to change the cost of living adjustment to the Consumer Price Index for
the Elderly (CPI-E) which is an inflation adjustment with a heavier weighting on
expenses that impact seniors such as healthcare and housing. This could lead to larger
annual increases in benefits.
In order to increase benefits for those who need it most and raising the annual cost of
living adjustment, the system will cost more than it does today. How would this be
SOLUTIONS FOR SOCIAL SECURITY
There is no one sized fits all solution to fixing Social Security. In fact, the best approach
is a multi-pronged solution by pulling the various levers of Social Security funding. Here
are some of the levers that could be changed to make a drastic impact on Social Security solvency:
- Increase payroll taxes on people earning more than $400,000/year. Currently
only $137,700 of income is taxed. This could shore up the program for an additional 5 years.
- Increase payroll taxes for everyone by 1.2% or 50 cents per week.
If we increase taxes on those earning above $400k/yr and phase-in payroll
tax increases between now and 2043, Social Security could be secure for
an additional 75 more years.
Other solutions include:
- Increasing the revenue contributed by today’s workers by increasing taxes and
the amount of income taxed for Social Security.
- Reducing benefits for future beneficiaries by Increasing “full retirement age” which is currently 67 years old.
HONORING OUR COMMITMENT
On April 20th, 1983, Ronald Reagan signed a bill to preserve Social Security. As he said
at the time,
“This bill demonstrates for all time our nation's ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have one pledge that they will get their fair share of benefits when they retire."
It is time to remove politics from the programs that provide security for so many of our
neediest citizens and to act now to shore up Social Security and Medicare.
THE VALUE OF WORKING WITH A FINANCIAL PLANNER
Financial Planning is not just about managing investment portfolios. More importantly it
is about having someone you trust to guide you when the unexpected occurs and to
make sure your family has a trusted resource to rely on.
At Abel Financial Management, we are local, family oriented and truly independent
financial planners with a mission to help you make smart decisions with your money. If
you or someone you know are faced with decisions like these, we invite you to come
have a conversation with us.