Personal Finance

Senate may soon vote on a bill to change certain Social Security rules

Published

1 month ago

December 18, 2024

Blank Social Security checks are run through a printer at the U.S. Treasury printing facility February 11, 2005 in Philadelphia, Pennsylvania.

William Thomas Cain | Getty Images

During the Senate’s final days of business in this Congressional session, it is expected to vote on a bill that would change certain Social Security rules.

The bill — the Social Security Fairness Act — would repeal provisions that reduce Social Security benefits for some individuals who also receive pension income from jobs in the public sector.

On Nov. 12, the House of Representatives passed the bill with the support of members of both sides of the aisle.

Now, it is up to the Senate to pass the bill amid a packed schedule that also includes a deadline to avoid a federal government shutdown.

What Social Security rules would be repealed?

The Social Security Fairness Act would eliminate certain rules affecting some public pensioners — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO.

The WEP reduces Social Security benefit payments for individuals who also receive income from non-covered pensions — payments from employers who did not withhold Social Security taxes from their salaries.

The GPO adjusts Social Security spousal or widow(er) benefits for people who receive income from non-covered pensions.

House Speaker Johnson needs to have a government funding bill by today: Punchbowl's Jake Sherman

Both rules have been in effect for decades.

The WEP was enacted in 1983 to make it so workers with non-covered pensions were not reimbursed as though they were long-time low wage earners. Social Security has a progressive benefit formula, which means low earners receive a higher income replacement rate.

The Government Pension Offset was established in 1977 and reduces Social Security benefits for spouses and surviving spouses who receive a pension based on their own government work that wasn’t subject to Social Security payroll taxes and Social Security spousal benefits based on their spouse’s work record.

Who is — and isn’t — affected by the rules?

The WEP affected 2.01 million individuals — or 3.1% of all Social Security beneficiaries — as of 2022, according to the Social Security Administration.

The GPO applied to almost 735,000 beneficiaries as of 2022, according to the Social Security Administration. That rule affects about 1% of all beneficiaries, according to previous estimates from the Congressional Research Service.

To be sure, the WEP and GPO do not apply to everyone.

Specifically, the WEP doesn’t affect beneficiaries who have 30 or more years of substantial earnings under Social Security. The rule also doesn’t apply to individuals who fall under other specific categories, according to the Social Security Administration: federal workers who were first hired after Dec. 31, 1983; employees of non-profit organizations that were exempt from Social Security coverage as of Dec. 31, 1983; individuals who only receive pension income for railroad employment; and individuals whose only work that didn’t include Social Security taxes was before 1957.

The GPO generally doesn’t affect spouses or surviving spouses who receive government pensions not based on their earnings or who are federal, state or local government employees whose pension is from employment where they paid Social Security taxes.

The Social Security Administration provides a tool on its website to help estimate how a pension may affect Social Security benefits.

What are the chances the bill will pass?

Last week, Senate Majority Leader Chuck Schumer, D-New York, said he would put the Social Security Fairness Act up for a vote.

Schumer has since filed a notice that he intends to call a cloture vote on the motion to proceed this week. If the cloture vote to proceed has the necessary 60 votes, the rest of the process may go “fairly quickly,” said Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare.

“The big vote is usually the motion to proceed,” Freese said. “If they can get 60 for that, then they should be in pretty good shape to get it done this year.”

A Senate version of the bill has 62 co-sponsors. However, there is no guarantee the bill will get 62 votes, Freese said. Two co-sponsors — Sens. Bob Menendez, D-New Jersey, and Dianne Feinstein, D-Calif. — are no longer in office. However, their replacements — Sens. Andy Kim, D-New Jersey, and Adam Schiff, D-California — both supported the bill when they were House members.

Yet another co-sponsor — Vice president-elect and current Sen. J.D. Vance, R-Ohio — may not be present to vote, Freese said.

Once a motion to proceed passes, amendments to the bill could be proposed if Senate leadership allows for it, said Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center. Those amendments could seek to replace a full repeal of the rules with a different fix or to offset the cost of the benefit increases.

“It has not been the ideal process for a significant change to Social Security to go through,” Sprick said.

The co-sponsors of the House bill had to file a discharge petition to bring it to the floor for a vote, which means it didn’t go through committees. Similarly, lawmakers in the Senate have not had the opportunity to hear the drawbacks of a full repeal of the rules and the alternatives, Sprick said.

“Full repeal makes the program less fair and more financially insecure,” Sprick said.

How soon would affected beneficiaries see changes in their benefit checks?

The change for nearly 3 million Social Security beneficiaries may take time to implement, according to Freese.

The Social Security Administration, which is already short staffed, may lose another 2,000 employees if it does not get the additional funding it requested in the continuing resolution Congress is also working to finalize, she said.

Moreover, it would take time for the agency’s staff to reprogram its computers and then begin sending out the new benefit payment amounts.

If the change is not put into effect immediately, the Social Security Administration will likely retroactively send catch-up checks or deposits to make up for the difference, Freese said.

How will the bill affect other Social Security reform?

The Social Security Fairness Act has received strong support from groups representing firefighters, police, teachers and other government employees who would be affected by the repeal of these rules.

However, policy experts have generally voiced opposition to the change, since nixing the rules would alter the progressive nature of the program.

It would also move Social Security’s projected trust fund depletion date to six months sooner, while costing about $196 billion over a decade, according to the Committee for a Responsible Federal Budget.

Even without this change, the trust fund the program relies on to pay retirement benefits may run out in nine years, the program’s trustees have projected.

“We are racing to our own fiscal demise,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement criticizing the efforts to repeal the WEP and GPO rules.

If the bill passes, it would also affect future reform efforts. But the problems Social Security now faces are bigger than just paying for the WEP and GPO repeal, Freese said.

“The closer it gets to the depletion date, the harder it gets, because you end up having less flexibility in terms of what you can do for the program in order to make it solvent,” Freese said. “You have less time to implement the changes.”

Personal Finance

Cities where you can quickly save a 20% home down payment

Published

6 hours ago

January 19, 2025

Business Finance News

Cofotoisme | E+ | Getty Images

How long it takes you to save for a 20% down payment on a home depends in part on where you live.

In a pricey area such as New York City, it could take the typical buyer roughly 10.85 years to save $173,000, which is 20% of the median list price of $865,000 for a home, according to a report by RealtyHop, a real estate investment agency.

RealtyHop measured the “barrier to homeownership” for the top 100 U.S. cities by population. The analysis is based on median list price using more than 1.5 million residential listings, as well as median household income data from the U.S. Census Bureau. It assumes a household saves 20% of its annual gross income and intends to make a 20% down payment.

In each of the five cities with the lowest barrier to homeownership, the savings timeline is less than four years.

Detroit has the lowest barrier to homeownership, the report found.

In Detroit, potential homebuyers who earn about $39,575 — the median household income in the area — need just 2.53 years to come up with a 20% down payment on a home purchase, the report found. That amounts to $20,000 for a home priced at $100,000.

Cleveland, Ohio, is the runner-up: A potential buyer in the area needs 3.55 years to save $27,800, or 20% of a home that costs $139,000, the median listing price in the area.

Rounding out the top five are Baltimore; Buffalo, New York; and Pittsburgh.

Even in cheap cities, there can be savings roadblocks

Big expenses can derail your down payment savings timeline, even in a city where homes are less expensive.

A separate report by Zoocasa, a Canada-based real estate website and brokerage, found that homebuyers with children on average take longer to come up with a 20% down payment versus buyers without children because of expenses such as child care costs.

Potential homebuyers with children in Detroit, for example, need roughly 20.3 years to save for a 20% down payment from scratch, according to Zoocasa. Meanwhile, homebuyers without children in the area need about 4.2 years to come up with a 20% down payment if they’re starting off without prior savings, the report found.

Rising home prices can represent another challenge, said Jacob Channel, an economist at LendingTree.

“The more expensive real estate is where you want to live, the more you’ll probably want to save for a down payment,” Channel said.

The median list price for homes in Los Angeles, for example, is about $1.13 million, RealtyHop found. LA tops the list of five cities with the biggest barriers to homeownership, followed by Irvine, California; Miami; New York City; and Anaheim, California.

Even the cheapest real estate price on the “high barrier” list — No. 3, Miami — is $699,000, nearly three times pricier than the most expensive city on the “low barrier” list, Pittsburgh.

If a typical household in LA aimed for a 20% down payment, they would need to save $1,339 a month for roughly 14.10 years, the report found.

Why you might not need to put 20% down

In many cases, a 20% down payment is not required for you to buy a home.

In the third quarter of 2024, the average down payment was 14.5% and the median amount was $30,300, according to Realtor.com data. That’s down from 14.9% and $32,700 in the second quarter of 2024, the site found.

Some mortgages require much smaller down payments. For instance, the Department of Veterans Affairs offers VA loan programs; those who qualify can put down as little as 0%. Mortgages from the U.S. Department of Agriculture, referred to as USDA loans, aim to help buyers purchase homes in rural areas and also offer 0% down payment options.

Federal Housing Administration loans, or FHA loans, can require as little as 3.5% down for qualifying borrowers, which include first-time buyers, low- and moderate-income buyers, and buyers from minority groups.

The benefit of a smaller down payment is that you can become a homeowner faster, and with less saved up, experts say.

But if you decide to buy a home with less cash upfront, you’ll likely end up with higher monthly mortgage payments.

“If you put less money toward a down payment, you’re going to end up with a larger loan,” Channel said.

Additionally, private mortgage insurance is usually added on to the monthly cost when the buyer puts less than 20% down on the home, he said.

PMI can cost anywhere from 0.5% to 1.5% of the loan amount per year, depending on factors such as your credit score and your total down payment, according to The Mortgage Reports. For example, on a loan for $300,000, mortgage insurance premiums could cost from $1,500 to $4,500 a year, or $125 to $375 a month, the site found.

“That’s another kind of payment that might be bundled in with your mortgage that further increases your housing costs,” Channel said.

How to come up with your own savings timeline

Where you want to live long-term and what your financial circumstances are can help you figure out your own down payment savings timeline, according to Melissa Cohn, regional vice president at William Raveis Mortgage.

First, you need to have a good household budget — understand how much money you make, the amount you typically spend and what you’re able to save in a given month, said Cohn.

“Can you cut back on how much you spend? Can you increase your savings? … Can you save your bonuses every year?” she said.

Then, find out what a house in your desired location typically costs. “It would be important for a buyer to go out and get an understanding of what price point would work for them,” Cohn said.

You also have to save for closing costs, which can vary substantially from place to place, Cohn said.

Average closing costs can range from roughly 2% to 6% of the loan amount, according to NerdWallet. So a $300,000 mortgage could require from $6,000 to $18,000 in closing costs on top of the down payment, it said.

To figure out what closing costs typically amount to in your desired area, ask a mortgage broker or a real estate agent, she said.

Overall, you want to set realistic goals for yourself and take the time you need to get there.

“Go as slow or as quickly as you need to,” LendingTree’s Channel said. “Ensure that you’re making good choices.”

Personal Finance

How Trump’s second term could mean the downfall of the FDIC, CFPB

Published

1 day ago

January 18, 2025

Business Finance News

Here's what to expect from the Department of Government Efficiency, or DOGE

Sweeping changes may be in store once President-elect Donald Trump takes office. Among them could be the closure of numerous federal agencies and regulators.

Trump will be sworn in for a second nonconsecutive term in the White House on Jan. 20. Already, he has suggested major cuts to federal spending.

To that end, Trump named Elon Musk and Vivek Ramaswamy co-chairs of a new outside advisory board dubbed the Department of Government Efficiency, or DOGE.

As part of its agenda, advisors to the government-efficiency group reportedly inquired about the possibility of shrinking or dismantling the Federal Deposit Insurance Corporation, or FDIC, according to a December report in The Wall Street Journal. In a Nov. 27 post on X, Musk also suggested the White House should “delete” the Consumer Financial Protection Bureau, another independent agency. “There are too many duplicative regulatory agencies,” he wrote in the post.

Trump’s transition team did not respond to a request for comment.

The future of the FDIC

Most bank account holders take for granted the fact that their deposits are insured.

Since its creation during the Great Depression, the FDIC has secured up to $250,000 per depositor, per bank, in each account ownership category. And over nearly a century, no depositor has lost FDIC-insured funds due to a bank failure.

“That’s one of its legacies,” said William Isaac, who was named chairman of the FDIC by former President Ronald Reagan and headed the agency during the banking crisis of the 1980s.

Former FDIC chair Sheila Bair: Eliminating the FDIC would be a mistake

In place of the independent agency, the Trump administration could task the Treasury Department with overseeing deposit insurance, according to reports.

“There may be great value in downsizing or eliminating overlapping agencies while still keeping key underlying functions they serve,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers. “For example, one proposal is to have Treasury insure bank-deposits rather than an additional agency such as FDIC.”

“It’s important to separate what government activities are being performed from who or how many agencies are in charge,” Philipson said. “Holding constant the activities being regulated, the fewer agencies the better.”

“I think it’s a terrible idea,” Isaac said of abolishing the agency. “The FDIC has brought about stability like we’ve never seen before.”

Others also argue that eliminating the FDIC would undermine the consumer lending system and leave some savers vulnerable.

“Getting rid of the FDIC would be a disaster for the U.S. economy and its preeminent status as a financial center,” said Brett House, economics professor at Columbia Business School. “Deposits are an abundant, cheap source of capital for American financial institutions.”

“Large banks may do fine without FDIC protections on their clients. But an end to federal insurance on them would be a serious drag on regional financial institutions that provide a major source of consumer lending and small-business financing,” House said.

Ultimately, because Congress controls the appropriation of federal funds, any proposal to eliminate the FDIC or any other agency would require congressional action.

The future of the CFPB

The Consumer Financial Protection Bureau has a much shorter track record than the FDIC. The watchdog group was created by Congress on the heels of the 2008 financial crisis to enforce consumer protection laws.

Since then, the CFPB has issued roughly 35 regulatory reports, including a 2024 effort to insulate Americans from credit card late fees.

“The CFPB is a recent creation and U.S. markets clearly functioned well for decades without it,” said Columbia’s House. “But recent increases in market concentration and power for a handful of firms in several major economic sectors makes the CFPB a critical force in balancing business and consumer interests.”

Unlike the FDIC, the CFPB draws its funding from the Federal Reserve system. Because it does not rely on an annual appropriation from Congress, it is somewhat insulated from political pressure.

However, the Consumer Bankers Association says the agency has increasingly “advanced ideologically-driven policies,” particularly over the last four years.

“The incoming administration and Congress have a unique and important opportunity to institute meaningful reforms to the CFPB, in both the immediate and long-term, that can help transform the agency into the credible and durable regulator Americans deserve,” CBA President and CEO Lindsey Johnson said in an email.

The CBA also released a white paper Tuesday outlining recommended changes to the CFPB, which include repealing or rescinding recent rules and guidance.

Consumers, however, are largely in favor of the CFPB’s actions, according to advocates. The agency protects “hard-working people from predatory practices and discrimination in financial services,” Richard Dubois, executive director of the National Consumer Law Center, said in a statement.

If the CFPB is dismantled, that could mean consumers would see some of those protections overturned — and it’s unclear what government entity, if any, might pick up the agency’s efforts for new or emerging issues. The CFPB has been investigating digital payment apps and buy now, pay later services, for example.

But there may still be room for streamlining, Isaac said.

“Surely we are wasting a lot of money. Anything we can cut out that’s not necessary — that’s fat — needs to be cut,” he said.

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Personal Finance

What to expect from travel prices in 2025

Published

1 day ago

January 18, 2025

Business Finance News

Osaka, Japan.

Jiale Tan | Moment | Getty Images

The new year has many travelers thinking ahead to 2025 vacation plans — and how much those trips may cost.

About half — 51% — of Americans say flight cost will determine their destination choices this year, according to Skyscanner. And 50% said hotel costs are a factor.

The average person has paid more for travel of late: Airline fares were up 8% in December, on an annual basis, and hotel costs had increased 2%, according to the consumer price index.

But travelers can still find deals, experts said.

They may find the best bargains by going abroad in 2025 — especially by visiting the Asia-Pacific region, experts said.

Travel demand has come back very strongly, says Star Alliance CEO

Airfare for international trips is down 4% this year compared with 2024, according to a recent Kayak analysis. About two-thirds of all flight searches for travel in 2025 are for international flights, it found.

Conversely, airfare for U.S. flights in 2025 is up 3% from last year, Kayak said.

Kayak’s analysis examined its internal search data between May 1 and Oct. 31, 2024, for travel in 2025.

Domestic fares in January are about 12% higher relative to the same month last year, according to Hopper, a travel site. They’re expected to stay above 2023 and 2024 levels until at least halfway through the year.

“Overall, it’s going to be a more expensive year than last year” for domestic travel, said Hayley Berg, lead economist at Hopper.

Largely, that’s because flying domestically in 2024 was cheap, as airlines “flooded the market” with seat inventory, Berg said.

“Prices this year are very similar to prices in 2023,” she said. “And 2024 really threw us for a loop in how low they got.”

Meanwhile, long-haul fares to Europe, South America, Oceania and Asia are flat or lower to start the year, Berg said.

Of course, a trip abroad is likely to be more costly on a dollar basis than one closer to home: The average round-trip U.S. flight cost about $300 in January, versus $685 to South America, $750 to Europe and about $1,100 to Asia, according to Hopper.

Average hotel rates abroad and in the U.S. are similar to 2024, according to Kayak.

Rental cars are 8% and 4% more expensive for international and domestic rates, respectively, it said.

Why Asia is ‘the best bargain’

Sapporo, Japan.

Sergio Formoso | Moment | Getty Images

Price largely depends on when people book and plan to travel.

For example, travel to Asia is the cheapest it’s been in three years, Kayak found. Average airfare to the continent is down 7% year over year, it said.

“Asia continues year over year to look like the best bargain,” Berg said.

Even some places that are red-hot with interest from travelers — including Sapporo and Osaka, Japan — are shaping up to be cheaper.

Search interest in Sapporo, for example, is up 31% year over year, but average airfare is down 19%, to $1,230, according to Kayak. Fares to Osaka, Japan’s “gastronomic capital,” are down 14% to $1,233, it said.

Tokyo is the most-searched international destination of 2025, it said.

Hotel room rates advertised in Asia-Pacific are expected to be 11% lower in the first half of 2025 relative to the same period of 2024, according to Lighthouse, a hospitality market research firm.

A ‘new market equilibrium’ for airfare

Daniel Garrido | Moment | Getty Images

Airfare to Asia-Pacific destinations is pulling back from high levels following the Covid-19 pandemic, Berg said.

Asian nations were generally slower to reopen their borders and drop Covid restrictions relative to other countries. Now, airlines are adding flight routes, boosting supply and lowering seat prices, Berg said.

“We have to see what the new market equilibrium will be,” Berg said.

Jet fuel prices — a major input cost for airlines — were down 11% in January from last year, Hopper said.

Like Asia, travel to the Caribbean is also the cheapest in three years, with airfare down 17% compared with 2024, according to Kayak.

Hotel deals more likely for off-season travel

Globally, hotel prices will vary widely, and established locales such as Paris, London, and parts of Asia such as Tokyo and Bangkok, Thailand, are “expected to reflect strong demand,” Melanie Fish, vice president of global public relations for Expedia Group, wrote in an e-mail.

“Meanwhile, emerging destinations or less-crowded spots may offer lower rates,” she said.

Hotel deals are “more likely” in off-peak seasons than peak periods such as spring break, summer or the holidays, particularly in areas with consistently high demand, Fish said.

Another factor helping travelers’ wallets abroad: the strength of the U.S. dollar versus many international currencies, she said.

Argentina, Japan, Mexico, Brazil and Hungary are among the top destinations where the dollar can stretch furthest, “making activities, dining and accommodations more budget-friendly,” Fish said.

Tips for saving money on travel in 2025

Colton Stiffler | Moment | Getty Images

There are some ways consumers can reliably save money on travel expenses.

1. Flexibility is ‘key’

“Flexibility is really the key to saving on travel,” Berg said.

This applies to many aspects of travel, including destination, the time of year you visit that locale and the days of the week you travel, experts said.

For example, it’s generally cheaper to fly midweek. Hotel stays have a similar dynamic. The bottom line: Weekends are probably pricier.

“Adjusting your [hotel] stay to midweek instead of weekends or traveling during the off-season can lead to substantial savings,” Sally French, a travel expert at NerdWallet, wrote in an e-mail.

Seasonality has a “huge effect” on flight costs, Fish said.

A bucket-list trip to Europe in August will be expensive and crowded, but traveling in September or October can save you 30%, Berg said. Visit a city instead of taking a beach trip during spring break, or wait until fall to head to Europe, Fish recommended.

Experts also recommend travel “dupes,” a less-trodden but similar alternative to a popular destination.

Also be open to alternative airports, French said.

“Many cities are served by multiple airports,” she said. “Rather than fly into, say San Francisco International Airport, consider flying into Oakland International Airport, which is a similar distance to most parts of the city for a trip to San Francisco.”

2. Book at the right time

Domestic flights are often cheaper when bought about one to three months ahead, French said. International travelers should book two to eight months in advance.

Last-minute airfare deals are rare, so book in advance for maximum availability and generally lower prices, she said.

The logic isn’t always the same for hotels: Travelers can sometimes find last-minute deals on room rates in certain markets, Fish said.

3. Book directly with your hotel

Many hotels offer price-match guarantees or loyalty member discounts that aren’t available on third-party booking sites, French said.

“Third-party booking sites can be great to browse and compare hotels against each other on that site, but once you’ve narrowed down the hotel you want to book, check its price elsewhere (including the direct hotel website, or even bank travel portals),” she wrote in an e-mail.