By Matthew Gaude & Shawn McGuire
During this election cycle, expanding Social Security is on the minds of all three front-running democratic candidates: Bernie Sanders, Elizabeth Warren, and Joe Biden.
Social Security provides an average of $1,471 a month to retired workers, but the program is set to turn insolvent by 2034 at its current rate. (1)
While other presidential candidates have talked about cutting Social Security benefits to preserve the program, Sanders, Warren, and Biden have proposed an increase in benefits.
Below we take a look at how Social Security currently raises funds and how each candidate plans on expanding the program.
How Social Security Raises Funds
Social Security raises funds through a 12.4% payroll tax, which is split between the employer and its employees. For 2019, only the first $132,900 of earned income is subject to the payroll tax. For 2020, the limit bumps up to $137,700. (2)
This tax limit means someone with a $400,000 salary pays the same in Social Security as someone who makes $137,700 a year. And this gap continues to widen every year as more people earn incomes beyond these limits.
While each candidate has different plans for expanding Social Security, one thing remains constant—they all hope to execute their plan by raising the payroll tax limits.
Bernie Sanders’ Plan For Social Security
Senator Bernie Sanders, from Vermont, wants to increase Social Security payouts by $108 a month for beneficiaries.
His plan includes raising the payroll tax cap from $137,700 to all income over $250,000, with the gap between non-taxable incomes ($137,700 – $250,000 in 2020) narrowing over time. (3)
“It makes no sense that billionaires pay no more into Social Security than someone making $132,900 a year. We will lift the Social Security payroll tax cap and provide a $1,300 a year benefit increase for the most vulnerable seniors,” Sanders tweeted on July 20, 2019.
Elizabeth Warren’s Plan For Social Security
Senator Elizabeth Warren, from Massachusetts, plans on boosting Social Security payouts by $200 a month for current and future recipients. She has a special focus on increasing benefits for women, low-income workers, widows, disabled individuals, and minorities.
Her plan includes increasing the payroll tax to 14.8% for incomes above $250,000, split evenly between employees and employers at 7.4% each. While most American workers contribute to Social Security with every dollar they earn, CEO’s and other very high income earners contribute to Social Security on only a fraction of their pay. Her plan also closes the so-called “Gingrich-Edwards” loophole to ensure that self-employed workers cannot easily reclassify income to avoid making Social Security contributions.
She also wants to place a 14.8% tax on net investment income for individuals making over $250,000 in annual income or families making more than $400,000 in annual income. Her plan creates a new contribution requirement-modeled on the Net Investment Income Tax from the Affordable Care Act, that asks people and families above these high income thresholds to contribute 14.8% of the lesser of net investment income or total income above these thresholds. Senator Warren’s plan also closes loopholes in the NIIT that allow wealthy owners of partnerships and other businesses to avoid it. This contribution requirement will ensure that the very wealthy are paying into Social Security even when they report the bulk of their income as capital returns rather than wages.
According to recent reports, Warren’s tax provisions would extend Social Security’s solvency to 2054. (4)
Joe Biden’s Plan For Social Security
Former Vice President Joe Biden has a focus on preserving and strengthening the current Social Security system.
His plan includes providing a bigger monthly check for retirees who have been drawing Social Security for at least 20 years, although he hasn’t stated a specific amount. Widows and widowers would see a 20% increase in their benefits.
For workers who spend at least 30 years in the workforce, Biden wants to increase their benefit to at least 125% of the poverty level. This would ensure that anyone over age 65 receives at least $15,053 a year in benefits.
Who We Are
Each of these candidates’ plans could change the way you prepare for retirement or pay taxes. At Live Oak Wealth Management, we’re committed to helping our clients plan for a secure retirement in light of Social Security. Whether you need to maximize your Social Security income or minimize your tax burden, we’re here to guide you every step of the way. To get started, call our office at 770-552-5968 or email firstname.lastname@example.org. Or, if you prefer, you can simply click here to schedule an appointment online.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
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