Personal Finance
Senate to hold final vote on Social Security bill. What leaders are saying
The US Capitol building in Washington, DC, on November 24, 2024.
Daniel Slim | Afp | Getty Images
The Senate is getting closer to a final vote on a bill that would increase Social Security benefits for an estimated 3 million people.
The chamber voted Wednesday to let consideration of the bill — the Social Security Fairness Act — proceed. The bipartisan proposal calls for repealing certain rules that reduce Social Security benefits for individuals who receive pension income from work in the public sector.
Despite a bipartisan 73 majority vote to proceed, the effort to advance the bill was met with some dissent, with Sen. Thom Tillis, R-N.C., citing the costs associated with the change. The Congressional Budget Office has estimated repealing the rules — known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO — would cost $196 billion over 10 years.
The WEP reduces Social Security benefits for individuals who receive pension or disability benefits from jobs where they did not pay Social Security payroll taxes. The GPO reduces Social Security benefits for spouses, widows and widowers who also receive their own government pension income.
Passing the bill would speed up Social Security’s trust fund insolvency dates by six months, according to the Committee for a Responsible Federal Budget. Without the change, Social Security’s trustees have projected the trust fund the program relies on to pay retirement benefits will run out in 2033, when 79% of those benefits will be payable.
“We are about to pass an unfunded $200 billion spending package for a trust fund that is likely to go insolvent over the next nine to 10 years, and we’re going to pretend like somebody else has to fix it,” Tillis said during a Senate speech ahead of the vote to advance the bill.
Tillis said lawmakers are not considering the 97% of beneficiaries who would not benefit from the bill, but who would be hurt by future consequences that passing it would have on the program.
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“Ladies and gentlemen, this bill has not even had a hearing in any committee in the House or the Senate,” Tillis said.
The Social Security Fairness Act was approved by the House in November after two lawmakers – Reps. Abigail Spanberger, D-Va., and Garret Graves, R-La. – filed a discharge petition to force a vote on the bill. The Senate cloture vote to proceed to a final vote also limited the ability for that chamber to debate the proposal.
The 27 Senate leaders who voted “no” on moving the Social Security Fairness Act to a final vote are all Republicans, with the exception of Sen. Joe Manchin, an independent representing West Virginia.
The Senators who voted to move the bill forward included a mix of Democrats and Republicans, including Senate Majority Leader Chuck Schumer, D-N.Y., and Vice President-elect and Sen. JD Vance, R-Ohio.
‘No excuse for treating our public servants this way’
Leaders who spoke on the Senate floor in support of the bill ahead of Wednesday’s vote to proceed cited the financial suffering of their constituents.
As of November, more than 2 million people’s Social Security benefits were affected by the WEP, while more than 650,000 people were impacted by the GPO, said Sen. Susan Collins, R-Maine, who co-led the Senate version of the bill.
One 72-year-old constituent had to return to work after her husband died, since the GPO reduced her Social Security widow benefits by two-thirds, Collins said.
“She did not have the financial security any longer to remain retired, and the GPO penalty left her with few choices but to return to work,” Collins said.
Sen. Bill Cassidy, R-La., recalled meeting with a retired Louisiana schoolteacher impacted by the GPO, who cried in his office because she didn’t understand why her Social Security spousal benefits were reduced.
“She felt like she was being punished for educating generations of Louisiana children,” Cassidy said. “There’s no excuse for treating our public servants this way.”
If the Senate passes the bill, it will be a win for Collins and Sen. Sherrod Brown, D-Ohio, who co-led the bill. Collins has pushed for the change for more than two decades, Brown noted in a Wednesday Senate speech. Brown is leaving the Senate after losing a reelection campaign.
Reps. Spanberger and Graves, who introduced the House bill, are also leaving Congress.
“If you love this country and fight for the people who make it work, I urge all my colleagues on both sides to join us — restore the Social Security that people who protect us in service have earned over a lifetime of work,” Brown said during a Wednesday Senate speech.
A few years ago, Wes Bellamy, 38, took stock of his investment accounts in preparation to buy a home in Charlottesville, Virginia. It was then that he noticed significant gains in his 401(k).
Although Bellamy, who is the chair of the political science department at Virginia State University, had been saving diligently for nearly a decade and making the most of his employer’s matching program, he said seeing his retirement account balance was “a pleasant surprise and a nice nest egg.”
Since then, his 401(k) balance has continued to grow. “I’m at $980,000 — I’m not at a million yet but I’m close.”
More millennials are 401(k) millionaires
Saving $1 million for retirement used to be considered the gold standard, although these days financial advisors may recommend putting away even more.
Millennial workers are still the most common generation to say they’ll need at least $1 million to retire comfortably, according to a recent report by Bankrate, and, for the first time, a larger share of younger retirement savers are reaching that key savings threshold.
The number of millennials with seven-figure balances has jumped 400% from one year ago, according to the data from Fidelity Investments prepared for CNBC.
Among this group, the number of 401(k) accounts with a balance of $1 million or more rose to about 10,000 as of Sept. 30, up from around 2,000 in the third quarter of 2023, according to Fidelity, the nation’s largest provider of 401(k) plans. The financial services firm handles more than 49 million retirement accounts altogether.
Generally, reaching 401(k) millionaire status only comes after decades of consistent contributions, making it a harder milestone for younger workers to achieve.
This year, positive market conditions helped boost those account balances to new highs. The Nasdaq is up 29% year to date, as of Dec. 19, while the S&P 500 notched a 23% gain and the Dow Jones Industrial Average rose more than 12%.
“Even shorter-term savers have done well because of significant market gains,” said Mike Shamrell, Fidelity’s vice president of thought leadership.
“If we continue to see positive market conditions, we could see not only the overall number of millionaires overall bump up over that threshold but also more millennials,” Shamrell said.
Whether savers benefit more from long-term savings efforts or a favorable investment environment, “the reality is, it’s a blend of both,” financial advisor Jordan Awoye, managing partner of Awoye Capital in New York, said.
Further, millennials — the oldest of whom will be 44 in 2025 — are nearing their peak earning years, he said, “which is making it more enticing to save for retirement.”
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Still, reaching the million-dollar mark “is not everything,” Awoye said.
Heading into a year of potential volatility, those balances will fluctuate, perhaps even dramatically. However, there is still plenty of time before millennial savers will need to access those funds in retirement. “You are likely not touching that money for 20 years. Even if [the market] goes up and down, stick to the script,” Awoye said.
“When you are retirement planning, you have to remember to tie it back to your North Star, which is your goal.”
How to become a 401(k) millionaire
Certified financial planner Chelsea Ransom-Cooper, chief financial planning officer of Zenith Wealth Partners in New Jersey, works with mostly millennial clients. She says she often encourages them to contribute more than what’s necessary to get the full employer match — even up to the maximum annual contribution limits for a 401(k) or IRA.
In 2023, only 14% of employees deferred the maximum annual amount into 401(k) plans, according to Vanguard’s 2024 How America Saves report. But that’s a missed opportunity, Ransom-Cooper said.
In 2025, employees can defer $23,500 into workplace plans, up from $23,000 in 2024. (The IRA contribution limit is $7,000 for 2025, unchanged from 2024.)
At the same time, employer contributions are climbing. Together, the average 401(k) savings rate, including employee deferrals and company contributions, rose to 12.7% in 2023, up from 12.1% the year before, according to the Plan Sponsor Council of America’s annual survey of 401(k) plans.
That’s made a big difference, Ransom-Cooper said. “There’s more money that can go into these accounts outside of the employee contribution, that can be really helpful to push these accounts higher and help people reach their retirement goals.”
While there is always the chance that a market downturn will take a toll on these balances in the year to come, the markets are up more than they are down, Ransom-Cooper said. “They can weather those tougher days in the shorter term.”
“Staying the course and keeping that longer term vision is really helpful,” she said.
Bellamy says his goal is to retire in another 20 years, before reaching 60. “Then, I’ll have another 15, 20 years to live my life freely as I want to.”
Drs Producoes | E+ | Getty Images
The average 401(k) savings rate, including employee deferrals and company contributions, continued to climb in 2023, a new industry survey reported.
In 2023, the average combined savings rate was 12.7%, up from 12.1% in 2022, with employees deferring 7.8% of pay and companies adding 4.9%, according to the Plan Sponsor Council of America’s yearly survey of more than 700 company 401(k) and profit-sharing plans.
“The deferral rate has been trending up over time,” with dips during economic downturns, said Hattie Greenan, director of research and communications for the Plan Sponsor Council of America.
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Meanwhile, Vanguard reported the average combined savings rate was an estimated 11.7% in 2023, which matched the figures from 2022, according to the company’s yearly analysis of more than 1,500 qualified plans and nearly 5 million participants.
Fidelity Investments, which reports retirement savings rates quarterly, estimated the combined savings rate was 14.1%, as of Sept. 30, 2024, based on an analysis of 26,000 corporate retirement plans.
How much to save in your 401(k)
Vanguard recommends saving 12% to 15% of your earnings every year, including employer contributions, to meet your retirement needs. The combined savings benchmark for Fidelity is 15%.
Typically, companies match employee deferrals up to a specified limit — and you should aim to contribute at least enough to get the full match, said Greenan from the Plan Sponsor Council of America.
“That’s really going to add up over time,” she said.
More than 80% of plans included a matching contribution in 2023, according to the Plan Sponsor Council of America report.
After hitting the match, some experts suggest boosting your deferrals every year, but “you’re going to see growth from whatever you can afford to contribute,” Greenan said.
Starting in 2025, the 401(k) maximum employee deferral will jump to $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution will remain $7,500 for workers 50 and older, but increases to $11,250 for investors aged 60 to 63.
If you’re planning to save more in 2025, right now is “an important time of the year” to boost deferrals, said certified financial planner and enrolled agent Catherine Valega, founder of Boston-area Green Bee Advisory.
Typically, it takes a few paychecks until your 401(k) deferral updates go into effect, so it’s better to make changes in December to be ready for January, she said.
Only 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s annual report. On top of maxed-out contributions, an estimated 15% of workers made catch-up contributions in plans with the feature, the same report found.
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