It is no secret that both Social Security and Medicare are underfunded, and changes are needed. This is a common concern that we hear from many clients approaching retirement. These programs are vital to retirees and it is clear that President Biden has some clear plans to help these programs remain solvent and also provide some benefit expansions.
During his campaign, President Biden had a clear plan for Social Security. Below are some of the highlights:
- Add a new tier for payroll tax contributions for incomes over $400,000. The current tax is 6.2% that is paid by both the employee and employer for a total of 12.4% on income up to $142,800.
- Offer credits for Social Security to caregivers for time spent out of the workforce. This is designed to specifically help women and deal with the current gender gap in benefits.
- Change the Cost-of-Living Adjustment (COLA) to be linked to CPI-E. This should increase the annual COLA that individuals would receive on their benefits.
- Currently, the surviving spouse gets the higher of the two Social Security benefits, which can cause a large decrease in the benefits they receive going forward. To help survivors there is a proposal to have the surviving spouse receive 75% of the combined benefits, so long as the new payment does not exceed the benefit received by a two-earner couple with average career earnings.
- Phase in a bonus equal to 5% of the average benefit to beneficiaries who had collected payments for 20 years.
There are many parts to Medicare. The focus on the plan changes is on Part A (covers hospitalizations) as it is the most underfunded and does not have the same revenue streams as the other parts of Medicare.
- Decrease the age for Medicare to age 60 or lower to expand the benefits.
- Change Part A funding to general revenue so it would be funded like the other parts of Medicare.
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