By Matthew Gaude & Shawn McGuire
We all know that when there’s a change in the White House administration, there could be changes to our day-to-day lives. And with the transition from a Trump presidency to a Biden presidency, two areas that could see some adjustments are Social Security and Medicare. This is a big deal for many Americans because over 48 million people received Social Security retirement benefits in November 2020 alone (1) and around 18% of Americans are covered by Medicare. (2)
First, let’s look at where these programs currently stand. We’ve been hearing rumors for years that Social Security is running out of funds. Here are the facts: Social Security trust funds have been running a surplus since 1982. Right now, the surpluses are predicted to stop in 2020 and the system will rely on incoming interest payments to make up the deficit until 2033. (3) At that point, if no changes are made, benefit payments may shrink to 80% of what Americans expect. (4)
If you’ve been following this story and are scratching your head at the 2033 date, you didn’t read that incorrectly. Previous estimates were that the trust fund would be depleted by 2035, but due to the COVID-19 pandemic and related economic struggles, the timeline has been pushed up 2 years. That’s not good news if you’re planning to retire soon.
And that’s just Social Security. Unfortunately, Medicare’s outlook doesn’t look any better. It’s estimated that Part A will run out of money in just 3 years, becoming insolvent right away if the Supreme Court overturns the Affordable Care Act when they will rule on the case in 2021. (5)
What does this all mean? It means that changes must be made for these programs to keep helping Americans.
Possible Social Security Changes
Before we look at Biden’s potential solutions to fix the funding shortfall, let’s look at two ways he wants to expand the program. First, he proposes to increase benefits for those who need them most, such as low-wage workers, caregivers, and seniors who have been receiving benefits the longest, to name a few. Second, he wants to change how Social Security’s cost-of-living adjustments (COLA) are made. Currently, Social Security determines COLA increases based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Biden wants to use the Consumer Price Index for the Elderly (CPI-E) instead because it considers factors that directly affect our nation’s seniors, like healthcare and housing. If this switch happens, it could increase COLAs for those who claim Social Security by an average of 0.25%. (6)
How Will Biden Pay For This?
The simple answer? Taxes. Biden’s plan is to increase Social Security payroll taxes on workers who earn more than $400,000 a year. But even this fix won’t solve the problem long term. Another option that could improve funding prospects for 75 years is to raise the payroll tax 1.2% for everyone—that includes both employees and employers. These are more drastic measures that could face problems getting through a divided Congress.
Possible Medicare Changes
The area Biden most wants to see changed for Medicare is in regards to prescription drug costs in Medicare Part D. There could be legislation that would make insurers pay more, which would save both subscribers and Medicare itself billions over the next decade. The same legislation would also like to prevent the annual increase of prescription drug prices from going beyond the rate of inflation. Biden would also like to see the government negotiate drug prices itself, taking more control over the situation and possibly saving Medicare over $400 billion over the next 10 years. (7) Just like Social Security, Medicare could be expanded to include vision, hearing, and dental coverage under traditional Medicare. (8)
How Will The Government Pay For This?
One of Biden’s ideas is to lower the age of eligibility from 65 to 60 to increase Medicare patients which would give Medicare more power when negotiating prices with healthcare providers. Not only that, but younger Medicare subscribers with less medical risk could reduce costs for patients overall. But criticisms of these ideas say that these changes could actually increase costs and not adequately address Medicare shortfalls. (9)
What Will Happen?
Like anything with the government, change takes time. Lots of it. And since we still don’t know who will hold the Senate, we don’t know how much of a fight it will take to get some of the new legislation passed. If you are concerned about Medicare or Social Security changes and want to prepare your finances for any outcome, call our office at 770-552-5968 or email email@example.com. 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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