You can view the list here (last updated Jan. 17).
The total annual cost of the Old-Age and Survivors Insurance Trust Fund (OASI), which pays retirement and survivor benefits, and the Disability Insurance Trust Fund is projected to exceed total annual income this year for the first time since 1982, according to a report released last year by trustees of the Social Security and Medicare funds.
The situation is pretty concerning for OASI because without reform, the safety net for retirees will have enough continuing tax income by 2034 to meet only 77 percent of scheduled benefit payments.
The Disability Insurance Trust Fund is in better shape, although it is also projected to have a shortfall. This fund will have enough money coming in to cover only 91 percent of scheduled benefits when its reserves are depleted in 2052.
A number of changes have been discussed to address the shortfall in the funds, including increasing the age at which the full retirement benefit can be collected.
One favorite fix is raising the income threshold for the Social Security payroll tax. In 2019, the cap was $132,900, so earnings above that amount were not subject to the Social Security tax, which is 6.2 percent for employees and a matching 6.2 percent for employers. In 2020, the maximum amount of earnings subject to the Social Security tax will increase to $137,700.
Here’s how some of the top candidates would fix Social Security, according to their websites.
— President Trump doesn’t list any proposals on his campaign website to address the Social Security shortfall. However, the Trump administration is considering revising regulations regarding when and how often Social Security conducts continuing disability reviews. Some critics argue that this would lead to people losing their eligibility.
— Joe Biden, the former vice president, would resolve the shortfall by “asking Americans with especially high wages to pay the same taxes on those earnings that middle-class families pay,” according to his website. Biden also has a plan to increase benefits.
— Sen. Elizabeth Warren (D-Mass.) would require the top 2 percent of families to contribute their fair share to the program. “Currently, the rich contribute a far smaller portion of their income to Social Security than everyone else. That’s wrong, and it’s threatening the solvency of the program,” Warren’s campaign site says.
— Sen. Bernie Sanders (I-Vt.) proposes to eliminate the payroll tax cap on income above $250,000. “At a time of massive income and wealth inequality, the wealthiest Americans in this country must pay their fair share into the system,” Sanders says on his site. “Today, a billionaire pays the same amount of money into Social Security as someone who makes $132,900 a year because the Social Security payroll tax is capped.”
— Pete Buttigieg, the former mayor of South Bend, Ind., also supports a change in the payroll cap for high earners. “Politicians in Washington have known this crisis was intensifying for years,” he says on his website. “And for years, they have failed to address it.”
Fifty-seven percent of retirees rely on Social Security as their primary source of income, according to a 2019 Gallup poll. In a 2018 Gallup survey, 44 percent of Americans said they worry “a great deal” about the Social Security system.
Social Security hasn’t gotten much attention so far in the election campaign, despite the fact that nearly 9 in 10 individuals age 65 and older receive benefits. Among elderly beneficiaries, 50 percent of married couples and 70 percent of unmarried people receive 50 percent or more of their income from Social Security, according to the Social Security Administration. And think about this: In the private sector, 49 percent of employees don’t have pensions.
Social Security matters — big time.
As you consider which candidate to support as president, look carefully at the specifics, or lack thereof, of their plans to address the looming crisis facing Social Security, the financial lifeline for so many Americans.
Secure Act FAQ
Q: Does this new act allow beneficiaries to roll over Roth IRA funds into their own Roth accounts without tax consequence?
A: “Unfortunately, only a spousal beneficiary (i.e., a spouse who has an inherited Roth IRA) can roll over the assets from that account into their own Roth IRA,” according to Fidelity Investments. “Other beneficiaries cannot roll over inherited Roth IRA assets into their own (non-inherited) Roth IRA. The Secure Act did not change the rule that only a spouse can do this type of inherited account rollover.”
Reader Question of the Week
If you have a retirement question, send it to firstname.lastname@example.org. In the subject line put “Question of the Week.”
Many readers continue to have similar questions to the one emailed by Ken Meisner of Overland Park, Kan.
Q: I have an inherited IRA from a member of my family that is just over ten years ago. I have been taking the RMD’s all these years and my first question to my accountant and my financial adviser was how it was affected by the new rules. My understanding is that if the death was before Jan. 1, 2020 then everyone meeting that requirement is grandfathered in and they do not have to empty it within 10 years. Is that correct?
A: Yes, this is correct. The new rule only applies to an inherited IRA where the account holder died after Jan. 1, 2020. If you’re wondering about how the Roth IRAs are specifically affected, read last week’s Secure FAQ.
Additionally, Aron Szapiro, director of policy research for Morningstar, answered reader questions about the Secure Act during my recent online chat.
Please join me on Thursday, Jan. 23 at noon (Eastern time) for a live discussion about your money.
I’m live every Thursday from noon to 1 p.m. (Eastern time).
Retirement Rants and Raves
Your thoughts: Tell me what you think of the ideas from 2020 presidential candidates on how they would fix Social Security.
I’m also interested in your experiences or concerns about retirement or aging. You can rant or rave. Send your comments to email@example.com. Please include your name, city and state. In the subject line put “Retirement Rants and Raves.”
Last week I asked: With the passage of the Secure Act, what plans are you making to adjust to the new rules?
Gerry L. from Beaverton, Ore., wrote, “to avoid subjecting my heirs to the horror of paying accelerated taxes (due to the elimination of the stretch IRA), my traditional IRA will be left to charity.”
Others wanted to talk more about why they dislike the changes under the Secure Act.
“In my opinion, the whole idea of the Secure Act changes are to keep the middle and Lower classes poorer than the elites,” wrote John Mattson of San Pedro, Calif. “Basically it prevents them from doing what the elites have been doing for centuries: Building wealth, preserving it, and passing it on to their offspring. While I could endorse a sliding scale for inherited IRA’s to keep them from being abused, I think the law as passed is a simple example of the keeping folks down.”
Herbert Taylor of Freeport, Maine, wrote, “Concerning the Secure Act’s imposition of a 10-year withdrawal period for inherited traditional IRA’s, I don’t think the rationale for limiting the withdrawal period to 10 years — given the fundamental purpose of IRA’s in the first place — is unreasonable at all, and 10 years is still a pretty generous period for an heir to enjoy the growth of inherited money tax-free. However, I always take a dim view of changing the rules of play after the game has started. I think the change should have applied to new IRA accounts or new contributions to existing IRA’s. In my own case, for example, had I known about this new provision when the Roth IRA’s were first available, I probably would have put additional contributions into one of those.”
Leslie Kapner of Culver City, Calif., wrote, “I am wondering why people are thinking emptying an IRA in 10 years will be a ‘tax disaster.’ Aren’t the beneficiaries still receiving free money? They can have the taxes withdrawn from the distribution when they request it, if that feels better. That’s what I do.”