Personal Finance

What may happen to Social Security in 2033 if trust funds aren’t fixed

Published

4 months ago

October 22, 2024

Social Security may not be able to pay full Social Security retirement benefits as soon as 2033, based on current projections from the program’s trustees.

If Congress doesn’t move to fix the situation by that date, the general expectation is that millions of retirees could see a 21% across-the-board benefit cut.

The effects of that lost income could be enough to prompt a retirement crisis, since it would double the elderly poverty rate and reduce median senior household income by nearly 14%, according to new research titled, “A Simple Plan to Address Social Security Insolvency.”

Yet those broad benefit cuts would not necessarily have to happen, as the worst effects of insolvency could be prevented by executive action, according to the report by Andrew Biggs, a senior fellow at the American Enterprise Institute, and Kristin Shapiro, counsel at BakerHostetler.

Instead of across-the-board benefit cuts, benefits could be reallocated to avoid increases in poverty for low earners while having just a small effect on the middle class, according to Biggs.

“It means big cuts on very rich people, but it avoids what you might think of as a retirement crisis, where everything is thrown into upheaval,” Biggs said.

Why Social Security’s trust funds face depletion dates

Social Security draws from multiple sources to pay benefits — ongoing revenue from payroll taxes and income taxes, as well as trust funds that are used to supplement the monthly checks beneficiaries receive.

Yet as more people collect Social Security retirement benefits, the trust fund used to pay those benefits is running low. The depletion date — currently 2033 — represents the point at which the fund will be exhausted.

At that point, it is expected that 79% of those benefits will be payable.

Social Security has more than one trust fund, including one that pays retired workers, their families and survivors, and a second that pays disability benefits.

Together, those trust funds have a projected depletion date of 2035, when 83% of benefits would be payable. While merging the funds could provide additional financial runway, doing so it not allowed under current law, according to Biggs’ and Shapiro’s research.

How broad benefit cuts could be avoided

As the November election approaches, experts generally hope a new president and new Congress will address Social Security’s solvency.

“We far prefer for Congress to enact comprehensive Social Security reforms before 2033,” Biggs’ and Shapiro’s research states.

The sooner Congress acts, the better it will be for all beneficiaries involved, to give them more certainty, said Shai Akabas, executive director of the Bipartisan Policy Center’s Economic Policy Program. A recent survey from Nationwide Retirement Institute found 72% of adults worry Social Security will run out of funding in their lifetimes.

The roughly 21% across-the-board benefit cut is “untenable and unsustainable, both politically and financially from a household perspective,” Akabas said.

However, if lawmakers fail to come to an agreement by the depletion date, the president could move to protect beneficiaries from the worst effects of the ensuing cuts, according to Biggs and Shapiro.

Social Security Administration Commissioner: Congress needs to act in order to avoid the shortfall

Once the depletion date arrives — whether it remains 2033 or shifts to another year — the president at the time could move to cap monthly benefits at about $2,050, the research proposes.

That change would reduce payments to beneficiaries who receive more than that amount and make Social Security solvent without adding new debt or increasing taxes.

At the same time, about half of all retirees and survivors would still receive their full benefit payments. Notably, no retiree would be pushed into poverty, according to the research.

To be sure, if the fund depletion date were crossed, lawmakers would face an unprecedented situation.

What happens next would depend on the interpretation of Constitutional law. That could prompt litigation, the research notes, including from beneficiaries who may not receive the benefits they were promised.

Personal Finance

As the price of bitcoin falls, you can leverage this tax loophole

Published

15 hours ago

February 28, 2025

Business Finance News

Jaque Silva/ | Nurphoto | Getty Images

With the price of bitcoin down from a record high in January, there’s a chance for some investors to score a tax break, experts say.

Following a post-election rally, the flagship digital currency touched $109,000 on inauguration day before falling in February. As of midday Friday, the price was around $84,000, after dipping below $80,000 overnight, according to Coin Metrics.

The latest selloff presents a tax planning opportunity, including a “loophole” that could go away amid Congressional tax negotiations, according to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.

The strategy, known as “tax-loss harvesting,” allows you to offset profitable investments by selling declining assets in a brokerage or other taxable account. Once your losses exceed gains, you can subtract up to $3,000 per year from regular income and carry excess losses into future years.

Some investors wait until December for tax-loss harvesting, which can be a mistake because asset volatility, particularly for digital currency, happens throughout the year, experts say.

“You should look for these opportunities continually and take advantage of them as they occur,” Gordon said.

You should look for these opportunities continually and take advantage of them as they occur.

Andrew Gordon

President of Gordon Law Group

The crypto wash sale ‘loophole’

When selling investments, there’s a wash sale rule, which blocks you from claiming a loss if you repurchase a “substantially identical” asset within a 30-day window before or after the sale.

But currently, the wash sale rule doesn’t apply to cryptocurrency, which can be beneficial for long-term digital currency investors, experts say.

“If you sell, for instance, bitcoin at a loss today and then buy it back tomorrow, you still have your loss on the books,” Gordon said. “This is an extremely effective strategy for crypto investors because they don’t have to exit their position.”

However, the strategy could disappear in the future as Congressional Republicans seek ways to fund President Donald Trump‘s tax agenda.

Sens. Cynthia Lummis, R-Wyo. and Kirsten Gillibrand, D-N.Y., in 2023 reintroduced a regulatory framework for cryptocurrency, which included closing the crypto wash sale loophole. Former President Joe Biden‘s fiscal year 2025 budget also included the proposal.

In the meantime, “the IRS gives us this loophole. We may as well take it,” Adam Markowitz, an enrolled agent at Luminary Tax Advisors in Windermere, Florida, previously told CNBC.

Of course, you should always consider your investing goals and timeline before implementing the tax strategy.

Personal Finance

Americans are suffering from ‘sticker shock’ — here’s how to adjust

Published

21 hours ago

February 28, 2025

Business Finance News

A worker stocks eggs at a grocery store in Washington, D.C., on Feb. 12, 2025.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

Whether it’s a dozen eggs or a new car, Americans are having a hard time adjusting to current prices.

Nearly all Americans report experiencing some form of “sticker shock,” regardless of income, according to a recent report by Wells Fargo.

In fact, 90% of adults said they are still surprised by the cost of some goods, such as a bottle of water, a tank of gas, dinner out or concert tickets, and said that the actual costs are between 55% and 200% higher than what they expected depending on the item.

Many Americans are still cutting back on spending, making financial choices and delaying some life plans, the Wells Fargo report also found. The firm polled more than 3,600 consumers in the fall.

“The value of the dollar and what it is providing may not be as predictable anymore,” said Michael Liersch, head of advice and planning at Wells Fargo. As a result, “consumer behaviors are shifting.”

Still, adjusting to a new normal takes time, he added: “Habit formation does take a while. Next year what you can imagine seeing is consumers being a little less surprised or shocked by prices and adapting to the current situation to create that goals-based plan.”

Some change is already apparent. Although credit card debt recently notched a fresh high, the rate of growth slowed, which indicates that shoppers are starting to lean less on credit cards to make ends meet in a typical month, according to Charlie Wise, TransUnion’s senior vice president of global research and consulting.

“After years of very high inflation, they are kind of figuring it out,” Wise said. “They’ve adjusted their baseline for what things cost right now.”

But with President Donald Trump‘s proposed 25% tariffs on imports from Canada and Mexico set to take effect in March, there is also the possibility that prices will rise even further in the months ahead.

Consumers fear inflation will pick up

Mexico and Canada tariffs could put pressure on some consumer staples, experts say. That includes already high grocery prices, which are up 28% over the last five years, according to the Bureau of Labor Statistics.

The prospect of tariffs and renewed inflation is weighing heavily on many consumers.

The Conference Board’s consumer confidence index sank in February, notching the largest monthly drop since August 2021. The University of Michigan’s consumer sentiment index similarly found that Americans largely fear that inflation will flare up again.

A recent CreditCards.com survey found that 23% of Americans expect to worsen or go into credit card debt this year, in part because they are making more purchases ahead of higher tariffs.

How to battle sticker shock

Consumer savings expert Andrea Woroch recommends setting a spending plan and tracking expenses. That helps you pinpoint wasteful purchases and those where prices are accelerating and take steps to save.

“Write out all your expenses currently from those essentials and the wants, figuring out an average monthly spend for fluctuating categories,” she said. “Once you have it all listed out, you can begin hacking away at unnecessary purchases or at least set goals for reducing in those nonessential categories.”

Identify triggers that lead to impulse purchases to help dodge them in the future, Woroch also said. “If you can’t resist a sale, then unsubscribe from store newsletters and turn off push notifications in deal apps.”

Ultimately, being more in control of your spending will “reduce the stress that comes with worry about how you’re going to afford higher prices,” Woroch said.

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Personal Finance

There’s still time to lower your 2024 taxes or boost your refund

Published

2 days ago

February 27, 2025

Business Finance News

Pra-chid | Istock | Getty Images

With tax season well underway, you may be eager for strategies to reduce your 2024 taxes or boost your refund. However, there are limited options, especially for so-called “W-2 employees” who earn wages, experts say.

After Dec. 31, there are “very few” tax moves left for the previous year, according to Boston-area certified financial planner and enrolled agent Catherine Valega, founder of Green Bee Advisory.

Once the calendar year ends, it’s too late to claim a tax break by boosting 401(k) plan deferrals, donating to charity or tax-loss harvesting.

But there are a few opportunities left before the April 15 tax deadline, experts say. Here are three options for taxpayers to consider.

1. Contribute to your health savings account

If you haven’t maxed out your health savings account for 2024, you have until April 15 to deposit money and score a tax break, experts say.

For 2024, the HSA contribution limit is $4,150 for individual coverage or $8,300 for family plans. However, you must have an eligible high-deductible health insurance plan to qualify for contributions.

“The HSA is easy,” said CFP Thomas Scanlon at Raymond James in Manchester, Connecticut. “If you are eligible, fund it and take the deduction.”

2. Make a pre-tax IRA deposit

The April 15 deadline also applies to individual retirement account contributions for 2024. You can save up to $7,000, plus an extra $1,000 for investors age 50 and older.

You can claim a deduction for pre-tax IRA contributions, depending on your earnings and workplace retirement plan.

The strategy lowers your adjusted gross income for 2024, but the account is subject to regular income taxes and required withdrawals later, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.

“A traditional IRA simply delays taxation,” he added.

A traditional IRA simply delays taxation.

Andrew Herzog

Associate wealth manager at The Watchman Group

3. Leverage a spousal IRA

If you’re a married couple filing jointly, there’s also a lesser-known option, known as a spousal IRA, which is a separate Roth or traditional IRA for nonworking spouses.

Married couples can max out a pre-tax IRA for both spouses, assuming the working spouse has at least that much income. It’s possible to claim a deduction for both deposits.

But whether you’re making a single pre-tax IRA contribution or one for each spouse, it’s important to weigh long-term financial and tax planning goals, experts say.