Personal Finance

Senate to vote on bill to increase Social Security for some beneficiaries

Published

3 days ago

December 15, 2024

Business Finance News

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Last month, Congress moved to take rare bipartisan action to change certain Social Security rules.

The House of Representatives on Nov. 12 passed the Social Security Fairness Act by an overwhelming 327 to 75 majority.

The proposal would eliminate rules that reduce Social Security benefits for those who also receive income from public pensions, roughly around 2.8 million people.

For supporters of the bill, that legislative victory has been followed by a suspenseful wait. The Senate must also pass the proposal for it to become law. And the number of legislative days left in this session of Congress are quickly running out.

At a Wednesday rally on Capitol Hill, Senate Majority Leader Chuck Schumer, D-New York, promised to put the bill up for a vote.

“I am here to tell you the Senate is going to take action,” Schumer said, prompting cheers from the crowd including fire fighters, police, postal workers, teachers and other government employees, who stood outside the Capitol building in the rain.

“I got all my Democrats lined up to support it,” said Schumer, adding they need 15 Republicans.

“What’s happening to you is unfair, un-American,” Schumer said. “I will fight it all the way.”

Bette Marafino, an 86-year-old retired teacher and a member of a national grassroots task force that has pushed to have the rules eliminated, was at the Capitol when the House voted in November.

The vote prompted cheers that turned into tears of joy from the small group of advocates who witnessed it. “We were so happy,” Marafino said.

Now, she is worried what may happen if the Senate does not pass the bill by Dec. 20.

“It’s going to be start all over again, and we’ll need to have some champions,” Marafino said, now that Reps. Garret Graves, R-La., and Abigail Spanberger, D-Va., who co-led the bill, are leaving Congress.

Prospect of nixing rules prompts fierce debate

Despite the enthusiasm from advocates behind the bill, many experts on both the left and right have said the Social Security Fairness Act is not the best policy.

The rules the bill would eliminate — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — were designed to make it so all Social Security beneficiaries received a comparable reimbursement for their contributions to the program.

Social Security is progressive, which means workers with lower lifetime earnings receive higher income replacement rates.

Without the rules, workers who are eligible for Social Security retirement benefits — and who also have income from pensions where they didn’t pay taxes into the program — may receive a higher income replacement than some workers who contributed to the program for their entire careers, experts argue.

The bill also does not include a way to offset the cost of the benefit increases it includes.

Over 10 years, it would cost around $196 billion, according to the Congressional Budget Office. That’s as the program currently has just nine years before the trust fund it relies on to help pay retirement benefits may be depleted.

“As far as I know, there are no policy experts who support repealing the Windfall Elimination Provision and Government Pension Offset,” said Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center.

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The WEP affects about 2.1 million Social Security beneficiaries — or about 3% of all Social Security beneficiaries — who see their retirement or disability benefit checks reduced because they also receive pension benefits from jobs not covered by Social Security.

The GPO affects almost 746,000 individuals — about 1% of all Social Security beneficiaries — by reducing spousal or widow(er) benefits because of pensions from non-covered government employment.

Rather than eliminate the rules altogether, some experts have suggested it would make more sense to replace them with more precise formulas for adjusting benefits.

Yet groups like the International Association of Fire Fighters maintain eliminating the rules altogether is the best policy.

The starting salary for a firefighter in Louisiana is around $40,000, said Edward Kelly, general president of IAFF. To make ends meet, those professionals often take on second or third jobs, where they do pay Social Security payroll taxes. Yet once they become eligible for the program’s benefits, they have that income reduced.

Generally, workers who pay in the same amount as non-public employees can see their monthly benefits reduced by $500 or $600, Kelly said.

“That’s devastating and it’s patently unfair,” Kelly said. “You’re basically being discriminated against for your public service.”

Public workers say Social Security cuts hurt

For many public workers, the reduction of their Social Security benefits comes as a surprise.

Roger Boudreau, a 75-year-old former teacher who is on the executive board of the Alliance for Retired Americans, regularly received Social Security’s annual benefit statements with estimates of how much monthly income he may expect.

However, those disclosures did not include any information on the WEP or GPO penalties, he said.

Boudreau didn’t realize how much his monthly checks would be reduced until he went to sign up for his Social Security benefits 10 years ago.

It was a shock to find out his Social Security benefits would be cut by 40%, Boudreau said. He estimates has resulted in a loss of about $5,000 per year over the past decade.

Other public workers are forced to delay their retirements because of the way the rules affect them, according to Lois Carson, 64, president of the Ohio Association of Public School Employees, an affiliate of the American Federation of State, County & Municipal Employees.

Carson, who has been a Columbus City School employee for about 37 years, has delayed her own retirement since the rules limit the Social Security survivor benefits she would receive while collecting a pension.

“Most women work longer, because they can draw their husband’s Social Security while they’re working,” Carson said. “But once they retire, it drops down to a third.”

If the bill is not passed, most of the 30,000 members she represents will go way beyond their 30 years of employment, she said.

Advocacy groups have been working tirelessly to get lawmakers to move the bill.

Since the proposal passed in the House in November, Kelly said the firefighters alone have sent around 29,000 emails urging Senate leaders to pass the bill.

The stakes are high, experts say.

The initiative must compete with the Senate’s other legislative priorities. If the bill doesn’t get passed in this Congress, it dies, Kelly said.

With 62 Senate co-sponsors, the bill has a strong chance of passing once it is brought up for a vote.

“If it gets to a final vote under standard Senate procedure, I don’t see a whole lot of opportunity for it to fail,” Sprick said. “The question is whether it gets to that final vote.”

Personal Finance

How to leverage the higher 401(k) plan contribution limit for 2025

Published

15 hours ago

December 17, 2024

Business Finance News

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If you’re eager to save more for retirement, it’s not too early to boost 401(k) plan contributions for 2025, financial experts say.

For 2025, you can defer up to $23,500 into 401(k) plans, up from $23,000 in 2024. For workers age 50 and older, the 401(k) catch-up contribution remains at $7,500 for 2025.

But there’s a “super funding” opportunity for 401(k) catch-up contributions for a subset of savers, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Enacted via Secure 2.0, the 2025 catch-up contribution limit will increase to $11,250 for employees ages 60 to 63, which brings the 401(k) deferral total to $34,750 for these investors.

“Probably no one knows about the extra increase,” and it could take time before the general public is aware of the new opportunity, said Boston-area CFP and enrolled agent Catherine Valega, founder of Green Bee Advisory.

However, boosting contributions later could still be beneficial for savers in this age range, experts say.

Increase 401(k) deferrals for 2025 now

If you plan to adjust 401(k) deferrals for 2025, “now is the time to be doing it,” Valega said.

Typically, it takes a couple of pay periods for 401(k) contribution changes to go into effect, and you could miss some higher contributions in January by waiting, she said.

If you miss bigger deposits early, you can still max out your plan by boosting deferrals later in the year. But higher percentages can “impact cash flow more than people are typically willing to do,” Valega said.

Lucas said he updated next year’s 401(k) contributions for his clients in early December.

“It’s already set for next year,” he said. “We’re on pace, starting with the first payroll.”

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Of course, many workers can’t afford to max out their 401(k) plan every year.

Roughly 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly 5 million participants.

Personal Finance

Student loan forgiveness chances lost to those who refinance: CFPB

Published

16 hours ago

December 17, 2024

Business Finance News

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With the Federal Reserve’s recent moves to lower interest rates — and further cuts on the horizon — some federal student loan borrowers are wondering if now is a good time to refinance.

“We are already seeing more borrowers tempted to refinance their federal loans,” said Betsy Mayotte, president of The Institute of Student Loan Advisors.

Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.

But the Consumer Financial Protection Bureau has new warnings about refinancing student debt.

In a report published Monday, the CFPB said that private lenders use “deceptive” practices in their marketing and disclosure materials, misleading student borrowers about a key pitfall of refinancing: Those who do so lose access to federal student loan forgiveness options.

“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” said CFPB Director Rohit Chopra. “Student loan companies should not profit by violating the law.”

Federal forgiveness chances dashed with refinancing

Some private lenders give the wrong impression “that refinancing federal loans might not result in forfeiting access to federal forgiveness programs, when, in fact, it was a certainty,” the CFPB report says.

The federal government offers a range of student debt forgiveness programs, including Public Service Loan Forgiveness and Teacher Loan Forgiveness.

PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments. Under TLF, those who teach full-time for five consecutive academic years in a low-income school or educational service agency can be eligible for loan forgiveness of up to $17,500. These options are not available to private student loan borrowers.

Borrowers refinancing would also not be eligible for one-off forgiveness efforts like President Joe Biden’s Plan B.

Private student loan borrowers who are struggling to pay their bills don’t have a right to an income-driven repayment plan, either.

IDR plans allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period.

Borrowers who refinance their student loans lose access to these federal relief options, the CFPB said.

And this has cost borrowers.

“The lenders profited from borrowers paying the full amount of their loans, when the borrowers otherwise potentially could have had some or all of those loans forgiven,” the bureau wrote in its report.

Lenders do inform borrowers of what benefits they may give up by making moves like refinancing, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for student loan servicers.

Buchanan said the government’s changing promises around student loan forgiveness has led to a lack of clarity. (Republican-led legal challenges have stymied the Biden administration’s efforts to deliver wide-scale student loan forgiveness to borrowers.)

“That volatility and confusion is something the Bureau needs to take up with the Department of Education,” Buchanan said.

But the federal government’s long-standing student loan forgiveness programs and other relief measures are reasons alone to think twice before refinancing, Mayotte said.

“We almost always very strongly recommend against it,” she said.

Personal Finance

Advisors remain reluctant to recommend crypto, even as prices soar

Published

17 hours ago

December 17, 2024

Business Finance News

Digital assets have rallied since the November U.S. election — with bitcoin notching a new high above $107,000 on Monday — and continue to gain ground as President-elect Donald Trump details his pro-cryptocurrency policy plans.

Still, many financial advisors remain wary.

“As traditional long-term planners, we currently do not incorporate crypto in our portfolio allocations,” said certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida. She is also a certified public accountant. “We always advise our clients to put in crypto what you’re not necessarily needing for retirement, what you’re comfortable losing.”

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To be sure, regulatory uncertainty remains a clear area of concern for financial advisors when it comes to recommending crypto investments to clients.

In April, when crypto prices were lower, an annual survey of 2,000 financial advisors by Cerulli Associates found that 59% don’t currently use cryptocurrencies or plan to in the future. Another 26% said they don’t use it now but expect to in the future.

Meanwhile, about 12% of advisors said they use cryptocurrencies based on clients’ requests, according to the Cerulli report, and less than 3% of advisors said they use crypto based on their own recommendations.

ETFs an ‘easy solution’ to add crypto

If investors are interested in crypto, CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina, advises many clients to use exchange-traded funds.

“It’s truly depending upon what the client is looking to achieve and how easy they feel in navigating this market,” he said. “If they’re looking for an easy solution. ETFs might be the best way to go.”

Spot bitcoin ETFs, first available in January, now have more than $100 billion in assets under management, which is about 1% of the overall ETF market.

“Bitcoin ETFs have become the vehicle of choice for bitcoin holders,” Brian Hartigan, global head of ETFs at Invesco, said during CNBC’s “Halftime Report” on Dec. 9.

Lawrence recommends clients interested in crypto limit the allocation to no more than 1% to 5% of their overall portfolio.

Most financial advisors agree that whether to have crypto investments in your portfolio depends on your risk tolerance, financial goals and time horizon.