Regardless of who wins the election, Social Security will surely remain a hot button issue. The program currently pays out more than it takes in, and this trend is likely to continue. The Social Security trust fund was projected to run out in 2035, at which point about 79% of benefits would be payable.[1] However, that projection was made before the pandemic and increased unemployment hit. President Trump and Presidential Candidate Joe Biden have different ideas for how to change the program, and the outcome of the election could affect Social Security.
The Financial State of Social Security
The Social Security trust fund was expected to run out by 2035 before the pandemic, and now, with record unemployment, it could run out faster.[2] However, it’s not likely that the program is ever going away. We could see changes to how the program distributes benefits and is financed during our lifetime, no matter who is president. Millions of Americans rely on Social Security for income in retirement, so it’s no surprise that it’s a high-priority issue for many voters. In a recent poll, 54% of respondents said protecting Social Security was among their top priorities for this election[3].
Potential Changes to the Program
Trump and Biden have different ideas for how to deal with the Social Security program’s financial state: Biden advocates applying the payroll tax to earnings over $400,000 in order to keep the program in full effect. Right now, the payroll tax only applies to wages of up to $137,700.[4] Biden’s plan creates a “donut hole” where wages between $137,700 and $400,000 would not be subject to the payroll tax at first. Over time, the maximum taxable amount of $137,700 would increase, until wages of any amount are subject to the payroll tax.[5] Meanwhile, President Trump recently signed an executive order to temporarily defer collection of payroll taxes for Americans making less than $100,000 through the end of the year. He has said that he wants the deferred taxes forgiven if he is reelected. Trump’s larger plan is to eliminate the Social Security payroll tax altogether, and instead fund the program through income taxes[6]. He has also proposed adding a disability benefit review to the Social Security disability program, which could potentially result in some Americans no longer receiving disability benefits, which then creates a smaller financial burden on the program.[7]
As for how benefits are distributed, Biden suggested increasing payments for individuals who have been receiving benefits for at least 20 years. He wants to institute a minimum benefit so that everyone who has worked for at least 30 years would be guaranteed a benefit of at least 125% of the federal poverty level and an increased benefit for surviving spouses of about 20%[8].
The Bottom Line
Regardless of what changes are made in the next few years, we can help you create a plan to maximize your benefits and help you stay on top of how changes may affect you. The right time to claim your Social Security depends on your individual situation. You might be wondering if you should claim Social Security early due to financial hardship, if your spouse should claim their own benefit or a spousal benefit worth half of yours, or if your benefit could be reduced if you’re still working. Sign up for a complimentary financial review so we can discuss how your Social Security benefit fits into your overall retirement plan and additional options for creating lifetime income.
[1] https://www.cnbc.com/2020/08/18/heres-how-joe-biden-plans-to-change-social-security-if-elected-president.html
[2] https://www.cnbc.com/2020/07/07/social-security-funds-at-risk-due-to-pandemic-what-that-means-for-you.html
[3] https://www.cnbc.com/2020/08/19/preventing-social-security-benefit-cuts-is-a-top-priority-in-2020-election.html
[4] https://www.cnbc.com/2020/08/18/heres-how-joe-biden-plans-to-change-social-security-if-elected-president.html
[5] https://www.fool.com/retirement/2020/08/16/4-social-security-changes-joe-biden-wants-to-make/
[6] https://www.marketwatch.com/story/trumps-idea-on-changing-social-security-funding-has-the-potential-to-break-an-impasse-on-much-needed-reforms-2020-09-09
[7] https://www.cnbc.com/2020/02/12/trump-budget-makes-it-harder-to-get-social-security-disability.html
[8] https://www.cnbc.com/2020/08/18/heres-how-joe-biden-plans-to-change-social-security-if-elected-president.html
Epstein & White Financial, LLC (“Epstein & White Financial”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. A copy of Epstein & White Financial’s current written disclosure statement discussing our advisory services and fees is available for review upon request or at www.adviserinfo.sec.gov.
Epstein & White Retirement Income Solutions, LLC (“Epstein & White Retirement”) is a licensed insurance agency with the State of California Department of Insurance (#0K53785). All investment advisory and financial planning services are provided only through Epstein & White Financial.
Information contained herein is for informational and illustrative purposes only and general in nature. It should not be considered investment advice or a recommendation to buy or sell any type of securities or insurance products and no investment decision should be made based solely on any information provided herein. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.
Investment in securities carries a risk of loss, including loss of principal amount invested. Different types of investments involve varying degrees of risk. It should not be assumed that diversification or asset allocation protects a portfolio from loss or that such will produce profitable results.
