There’s a new president in the White House, but some previous changes to Social Security are potential client talking points for advisors.
For many clients, Social Security isn’t the primary source of retirement income, but it is still an important part of the equation.
“If you’re like many Americans, the Executive Orders (‘Orders’) signed by President Trump on August 8, 2020, brought about mixed emotions,” writes Nationwide. “While the Orders provided American workers temporary relief in the form of a deferral of the employee’s share of payroll taxes from September 1, 2020 to December 31, 2020, President Trump also directed the U.S. Treasury to find a means of eliminating the employee share of payroll tax altogether beyond the December 31, 2020 deadline which has stirred up questions about the sustainability of Social Security and possible negative impacts that such a move may have on an individual’s overall retirement goals.”
Others, however, treat social security like a bond investment given the fact that it provides regular (not to mention federally guaranteed) income in the same way that fixed income securities do. Social security is similarly unaffected by the vagaries of the stock market.
Sizing Up Social Security Today
“The Social Security Program is a trust fund established by the U.S. federal government that is funded with payroll taxes from both workers and their employers,” notes Nationwide. “When an individual earns compensation, a percentage of their payroll goes into the trust fund. The assets within this trust fund are used to pay benefits to individuals and families to whom benefits are owed. If payroll taxes are deferred, then the delayed deposits further increase the rate at which the Program’s assets will be depleted and therefore not meet its future intended obligations.”
Since social security also provides cost of living adjustments, all these benefits are also protected from the ravages of inflation. Inflation can otherwise cripple the purchasing power of retirees during what often amounts to several decades of retirement.
As it stands today, Social Security can pay benefits through 2035, assuming no tax increases or other revenue boosters.
“One thing you can do right now is save as much as you can in your employer sponsored qualified retirement plan,” adds Nationwide. “This is the most tax-advantageous means of personally saving for your own retirement. These plans allow you to make a pre-tax contribution, reduce annual taxable income, and allow for tax-deferred growth. Many of these plans will also provide for an employer matching contribution, meaning that if you contribute a certain percentage, your employer will match your contribution up to a certain percentage. By not taking advantage of the matching contribution, you are leaving retirement income on the table.”
For more on income strategies, visit our Retirement Income Channel.