It’s certainly been an eventful couple of weeks since our last episode! There’s a very good chance that the first round of COVID-19 vaccines will be administered to our frontline medical heroes before the end of the year. We also saw the Dow Jones pass the historic 30,000 mark for the first time in history. And while that milestone reveals that there’s still some disconnect between Wall Street and Main Street in terms of our economic recovery, we certainly have some very positive signs pointing us towards 2021.
On the political front, as states around the country finished counting, recounting, and certifying their vote totals, President-elect Joe Biden started to formalize his transition and announce some of his cabinet nominees. As we move closer to Biden’s swearing-in on January 20th, we thought it would be a good time to remind folks of some changes that are coming to Social Security next year and also discuss potential changes that the President-elect pitched on the campaign trail.
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1. These changes ARE coming.
As we discussed in a recent blog post, you and your fiduciary advisor should discuss three changes that will affect 2021 Social Security benefits:
- The 2021 cost-of-living adjustment (COLA) is going to be 1.3%. On average, seniors should expect about a $20 per month increase to their benefits and a $33 per month increase for couples. Earlier in the year there was some concern that COVID-19 would drive up Medicare premiums high enough to offset any Social Security benefit increase, but in 2021 Medicare is only going up by $3.90 per month.
- Beneficiaries who are not yet at their full retirement age but still working will be able to earn up to $18,960 before one benefit dollar is withheld for every $2 earned above the limit. If you’re thinking about setting up your own consulting firm or teaching part time in retirement, be careful about taking your Social Security benefits early or you could end up owing the SSA come tax time.
- Anyone who is turning 62 in 2021 will have to wait until they are 66 years and 10 months old to claim full retirement.
2. These changes are … Well, who knows?
During his campaign, President-elect Biden had two goals for improving Social Security: increasing benefits to low-income workers, widows, and widowers, and shoring up the solvency of the fund.
Under President-elect Biden’s plan, if a person works for 30 years at low-paying jobs and earns a very low Social Security benefit, the benefit would be increased to equal 125% of the federal poverty level ($1,300 in 2019 rates). Biden would also ensure that after the death of a spouse, the survivor receives at least 75% of the amount that the couple was receiving. Currently, when both spouses are receiving Social Security and one dies, the lower of the two Social Security benefits drops off for the survivor.
President-elect Biden has proposed paying for these changes by creating a “donut hole” in the FICA tax that would affect folks earning over $400,000. As the Biden administration looks for new approaches to entitlement spending and stabilizing the country post-COVID, it’s also possible that we’re going to hear more about Modern Monetary Theory, which argues the U.S. should spend on essential programs now and stop worrying about matching the bill to tax revenue.
Whether a (likely) Republican-controlled Senate is going to warm to these ideas is just one of the many challenges Joe Biden will be facing in January.
Remember, one of the reasons the markets have been up since the election is that investors love divided government. The same gridlock that could stall potential changes to Social Security in Washington also creates the kind of stability that often drives positive returns on Wall Street.
Which is why, once again you shouldn’t let the political rhetoric influence your financial planning until the various proposals actually become law. Instead, schedule a call so that we can talk about the changes to Social Security that are definitely coming next year and all of the other important financial transitions you’re anticipating.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with nearly three decades of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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