Every two years, we get a small dose of election campaign rhetoric regarding Social Security, and every four years, we get a big dose. Candidates claim their opponents’ plans to save Social Security will bankrupt grandma, rob children of their future, or worse.
This year, New Jersey Gov. Chris Christie kicked off the tradition with a bold proposal to scale back Social Security benefits for some Americans. Christie, a potential presidential candidate, proposed means testing that would reduce the size of benefits for people earning more than $80,000 annually and phase them out completely for those earning $200,000 or more. He also wants to raise the full retirement age from 67 to 69 for people born in 1960 or later. When the rhetoric heats up, we inevitably get panicked calls from advisors asking for our prognostications on what will happen and how it will impact the strategies we help you identify. Our answer can be summed up this way: This is a big ship, and it doesn’t turn quickly.
You may be surprised to know that at any given time, there are literally dozens of bills pending in Congress that would significantly change the system. Two notable bills introduced in just the past 30 days are HR 1756 and HR 1391. HR 1756 would increase benefits for low-income workers, increase the age through which children’s benefits may be collected, add another bend point to the primary insurance amount (PIA) formula, and increase Social Security tax rates. HR 1391 would increase benefits, change the cost-of-living adjustment (COLA) measure to Experimental Price Index for the Elderly (CPI-E), increase the thresholds for taxable Social Security to $50,000 and $100,000, remove the “earnings cap” for taxes and raise tax rates.
Oops — while I was writing this, a new bill was introduced: HR 1811, the full text of which is not yet available. If you are ever bored and want to know just how much activity revolves around Social Security, visit www.congress.gov and search for Social Security.
There’s no doubt that a firestorm around Social Security benefits will swirl for the balance of 2015 and into November 2016. Proposals will likely seek to swing the system in opposite directions. Some proposals will focus on increasing benefits and taxes, while others will focus on cutting benefits, particularly for high-wage earners. Sooner or later, change is likely, as the current path of the system is unsustainable. Our advice to advisors regarding changes to the system will remain the same — this is a big ship and it doesn’t turn quickly. Expect change, especially for younger workers who are further from retirement, but don’t let the possibility of changes cause you to ignore the very real planning options that will help your clients who are making the decision today.
Joe developed Social Security Timing® in 2010 because, as a practicing financial advisor, he couldn’t find a Social Security tool that would help his clients make the best decision about when to elect their benefits. Inspired by the success of Social Security Timing, Joe founded Covisum®, a financial tech company focused on creating a shared vision throughout the financial planning process.
In 2016, Covisum introduced Tax Clarity®, which helps financial advisors show their clients the hidden effective marginal income tax rates that can significantly impact cash flow in retirement. In early 2017, Covisum acquired SmartRisk™, software that allows advisors to model “what-if” scenarios with account positions and align a client’s risk tolerance with their portfolio risk.
Covisum powers some of the nation’s largest financial planning institutions and serves more than 20,000 financial advisors.
Based in Omaha, Nebraska, Joe co-authored “Social Security Essentials: Smart Ways to Help Boost Your Retirement Income,” is a regular speaker at industry events and is frequently interviewed by trade and national media.