Personal Finance
How the November election may influence Social Security’s future
Demonstrators attend a rally asking Rep. Kean to “Stop MAGA Cuts! Protect Social Security!” on Feb. 24, 2023 in Bridgewater, New Jersey.
Dave Kotinsky | Getty Images Entertainment | Getty Images
Voters who show up at the polls this November may not just be choosing among Republicans, Democrats and third-party tickets — but also casting a vote on the future of Social Security.
Social Security is expected to pay $1.5 trillion in benefits to an average of almost 68 million Americans per month in 2024.
More than half of peak baby boomers — the largest cohort expected to turn 65 by 2030 — are expected to rely primarily on Social Security for income in retirement.
Meanwhile, Social Security’s trust funds are projected to run out in the next decade, which will prompt an across-the-board benefit cut of at least 20% if no changes happen sooner. As Congress weighs that dilemma, they will also decide Social Security’s future role in Americans’ lives.
More from Personal Finance:
Most retirees don’t delay Social Security benefits
Women reaching ‘peak 65’ more likely to struggle in retirement
Americans think they need almost $1.5 million to retire
Democratic lawmakers like Rep. John Larson, D-Conn., who is running for reelection this year, say today’s benefits are not enough.
“Nobody’s getting wealthy on Social Security,” Larson said in a recent interview with CNBC, noting that more than 5 million Americans receive monthly benefit checks that are below the federal poverty level.
“It is the very sustenance that 40% of all Americans need just to get by, and it hasn’t been adjusted in more than 50 years,” Larson said.
‘Why hasn’t Congress voted?’
In 1983, when the last major Social Security reforms were enacted, there were no benefit enhancements, Larson argued. Among the changes put in place at that time was a gradual increase in the retirement age, taxes on benefit income and reduced benefits for public employees with pensions.
For years, Larson has championed a bill — Social Security 2100 — that aims to increase benefits for all beneficiaries by lifting the payroll tax cap for taxpayers earning over $400,000. Today, annual earnings of up to $168,600 are subject to a 6.2% payroll tax toward Social Security paid by both workers and employers. Larson’s plan also calls for closing loopholes that allow wealthy taxpayers to avoid paying Social Security taxes on other income.
Larson said the public is well aware that Social Security benefits are theirs and they’ve paid for them. Yet the same question comes up again and again: “Why hasn’t Congress voted?”
Rep. John Larson, D-Conn., speaks during an event to introduce legislation called the Social Security 2100 Act. which would increase increase benefits and strengthen the fund, on Capitol Hill on Jan. 30, 2019.
Mark Wilson | Getty Images News | Getty Images
The latest version of Larson’s bill has 184 Democratic co-sponsors yet has never been brought to the House floor for a vote.
Another bill, the Social Security Fairness Act, has even broader support, with 318 co-sponsors from both sides of the aisle, yet that also has yet to be put up for a vote. That proposal tackles just two changes also included in Larson’s bill — repealing the Windfall Elimination Provision and Government Pension Offset rules that limit Social Security benefit income for individuals who receive other benefits like pensions from a state or local government.
Retirement age may be pushed higher
Meanwhile, the Republican Study Committee’s budget, comprising proposals from 192 Republican House members, has suggested changes to Social Security, like raising the retirement age, as it seeks to cut federal spending across the board.
Democrats have called out the more than $1.5 trillion in cuts to Social Security that the Republicans’ proposal may entail.
By raising the retirement age for everyone 59 and younger, Budget Committee Democrats estimate that 257 million people would have to work longer.
The Republican budget proposal has prompted fears that the party could move to enact those changes through a closed-door commission, Nancy Altman, president of advocacy organization Social Security Works, testified before the House Ways and Means Committee last week.
In response, Rep. Drew Ferguson, R-Georgia, who serves as chairman of the House Ways and Means Subcommittee on Social Security, said the committee would not be voting on the Republican budget proposal.
“I have said many times that the only way that this gets solved is in a bipartisan open forum,” said Ferguson during the hearing.
Path to bipartisan compromise uncertain
But how a bipartisan effort should proceed is up for debate.
Larson hopes to bring his Social Security 2100 proposal to the House floor for a vote, betting that some Republicans may come around and back making benefits more generous.
The extra money sent to the nation’s seniors would be spent in their districts, he argued. Moreover, the tax increases would require wealthy individuals to pay what every other working American is already contributing to Social Security, he said.
During last week’s hearing, Rep. Jodey Arrington, R-Texas, said that while he respects Larson’s passion, he still expects it will be necessary for lawmakers to agree on some combination of tax increases and benefit cuts that will affect future beneficiaries.
Experts including Charles Blahous, senior research strategist at the Mercatus Center at George Mason University, agreed.
“The size of the shortfall now is so huge, and so far beyond anything that lawmakers have successfully closed before, the notion that either party can ram through its preferred solution is fanciful,” Blahous said.
Benefits are regularly increased, Blahous argues, through changes to the initial benefit formula and cost-of-living adjustments.
Larson, for his part, has vowed to “never give up, never relent,” when it comes to pushing for his proposal.
Social Security advocates argue that those changes are what people want.
“If you expand Social Security’s benefits … and you pay for it by requiring the uber wealthy to pay their fair share, you will receive widespread praise and the gratitude of the nation,” Altman told members of the House Ways and Means Committee last week.
Franckreporter | E+ | Getty Images
Millions of older workers lost their jobs during the Covid-19 recession.
Between March and April 2020, 5.7 million workers ages 55 and up lost their jobs, according to the Economic Policy Institute’s analysis of federal data.
Now, five years since the onset of the pandemic, some older workers may be benefitting from policies that help them extend their careers.
“We’re seeing more and more employers putting in benefits and programs that help retain some of that older workforce,” said Carly Roszkowski, vice president of financial resilience programming at AARP.
These programs include phased retirement plans, part-time schedules and remote or hybrid work options, Roszkowski said.
Money is still the main reason why people want to stay in the workforce longer, particularly as inflation has pushed prices higher, according to Roszkowski. But there are also other motivators, including social connections, a sense of purpose or meaningful work that may help inspire individuals to continue to work.
More from Personal Finance:
Should you wait to claim Social Security? Here’s what experts say
Americans more worried about running out of money in retirement than dying
Nearing retirement? These strategies can protect from tariff volatility
Working remotely may help extend careers
One lasting impact of the pandemic — increased flexibility to work remotely — may be helping some older workers delay retirement, according to new research from the Center for Retirement Research at Boston College.
The research finds that an individual who is working remotely is 1.4 percentage points less likely to retire than a worker in an otherwise comparable situation.
Based on those results, that could enable workers to extend their careers by almost a full year.
“If they delay claiming Social Security for that year, or delay digging into their 401(k) for that year, or contribute to their 401(k) for that year, that’s all going to be good for their finances,” said Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and professor of the practice of economics at Boston College.
Whether or not individuals can work remotely comes down to employer preference. For example, some companies — JPMorgan, AT&T, Amazon and Dell — have moved to five-day in-office policies. The federal government, which has a workforce that skews older, has also moved to enforce in-person work policies under President Donald Trump.
Research suggests older workers benefit from remote work. In particular, the employment rate of older workers who have a disability increased by 10% following the pandemic, according to the Center for Retirement Research.
To be sure, not all careers may allow for remote work.
What career experts say to do now
Career experts say there are certain ways older workers can help extend the longevity of their working years.
Older workers should focus on upscaling — gaining new skills or boosting their current skill set — to help show off their skills to employers, said Vicki Salemi, career expert at Monster. That may be through a certification, online class or volunteering, she said.
Having a foundational, basic understanding of technology tools used in the workplace is also essential, said Kyle M.K., a talent strategy advisor at Indeed.com.
Older workers may also want to show off their relationship building skills, which can set them apart from younger generations that are more digitally inclined, according to Salemi.
Mentoring, conflict resolution or other interpersonal skills are highly sought after skills that should be highlighted, where possible, M.K. said.
By keeping digital profiles up to date on job search sites, older workers can emphasize their skills and experience, he said.
“Digital presence is sometimes the very first introduction that the employer will have with you,” M.K. said.
Don Mason | The Image Bank | Getty Images
If you’re eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say.
For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in “catch-up contributions” if you’re age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63.
Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit sharing and other deposits.
If you can afford to do this, “it’s an amazing outcome,” said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.
“Sometimes, people don’t believe it’s real,” he said, because you can automatically contribute and then convert the funds to “turn it into tax-free income.”
However, many plans still don’t offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard’s How America Saves report. It’s most common in larger plans.
Even when it’s available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That’s down slightly from 10% in 2022.
How to start tax-free growth
After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there’s a key difference: The taxes on future growth.
Roth money grows tax-free, which means future withdrawals aren’t subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn.
That’s why it’s important to convert after-tax funds to Roth periodically, experts say.
“The longer you leave those after-tax dollars in there, the more tax liability there will be,” Galli said. But the conversion process is “unique to each plan.”
Often, you’ll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said.
Focus on regular 401(k) deferrals first
Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina.
After that, cash flow permitting, you could “start filling up the after-tax bucket,” depending on your goals, he said. “In my opinion, every dollar needs to find a home.”
In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.
Stocks making the biggest moves after hours: AAPL, AMZN, ABNB, XYZ
How one Ivy League university avoided the president’s wrath
Mike Waltz’s demotion is a loss for defence hawks
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoIf Trump wants rate cuts, he would likely need to replace the Fed’s full board
-
Personal Finance1 week agoConsumers are making different financial choices in response to tariffs
-
Economics1 week agoBusiness already are trying to pass tariff cost onto customers, Fed report says
-
Economics6 days agoECB members say inflation job nearly done but tariff risks loom
-
Accounting6 days agoAt Schellman, AI reshapes a firm’s staffing needs
-
Economics5 days agoAmericans are getting flashbacks to 2008 as tariffs stoke recession fears
-
Economics6 days agoTrump insists bond market tumult didn’t influence tariff pause: ‘I wasn’t worried’
-
Economics1 week agoOrders for big-ticket items like autos and appliances surged 9.2% in March in rush to beat tariffs