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Retirees have some specific financial challenges that the U.S. government long ago stepped in to help address by introducing programs such as Social Security and Medicare.
Since taking office in 2021, President Joe Biden and his administration have undertaken several initiatives aimed at helping retirees. “The Biden administration clearly does not want to antagonize retirees and future retirees,” says Sean Mullaney, a financial planner at Mullaney Financial & Tax in Woodland Hills, California.
For example, Mullaney says the administration has not gone along with calls from some Congressional Republicans to raise Social Security eligibility ages. That would likely be unpopular for a president of either party to propose.
Mullaney also points out that Biden signed into law the Inflation Reduction Act, one provision of which allows many retirees under age 65 to claim significant tax credits against their Affordable Care Act medical insurance premiums.
Also under the Biden administration, the Social Security Administration provided an 8.7% Social Security cost of living adjustment for Social Security payments beginning in December 2022 to help retirees combat inflation.
Many programs and rules that apply to retirees have been updated over the years out of necessity as times change and inflation rears its head.
Earlier this year, Biden rolled out proposals to shore up what’s formally known as the Social Security Old Age and Survivors Insurance Trust.
For starters, Biden has proposed a payroll tax for income above $400,000. Currently, earned income up to $160,200 is subject to a payroll tax of 12.4%. Biden’s proposal entails taxing earned income above $400,000, while leaving income between $160,200 and $400,000 untaxed for payroll purposes.
He also proposed shifting the Social Security cost of living adjustment, or COLA, to reflect expenses commonly incurred by retirees. The COLA is currently pegged to the consumer price index for urban wage earners and clerical workers.
According to analysis by the University of Pennsylvania’s Wharton School of Business, “That index does not accurately capture annual changes in the general price level of the basket of goods and services that retirees purchase, which includes more health-care-related items and less work-related items such as clothing and transportation.”
Biden’s plan would calculate the COLA benefit using the consumer price index for the elderly, which typically increases faster than the index the Social Security Administration currently uses.
Biden is proposing an increase in Social Security’s primary insurance amount, or PIA. That’s the amount a recipient receives, depending on the age he or she begins receiving a benefit, tied to the recipient’s average indexed monthly earnings.
Historically, a recipient’s PIA hasn’t increased, although COLA payments do increase. However, Biden’s proposal would boost the annual PIA by 1% for recipients between ages 78 and 82.
Finally, Biden’s plan calls for increasing the special minimum benefit for those who earned low wages throughout their careers. The Social Security special minimum benefit is designed to provide a higher monthly benefit to long-term workers with low lifetime earnings, ensuring more adequate retirement income for those who need it most.
According to the Wharton School’s research, very few beneficiaries are affected by this provision, “However, the benefits of those affected remain well below the poverty level.” Wharton says the Biden plan proposes an increase to the special minimum benefit of between 5% and 50% for long-term low earners with work histories between 10 and 30 years.
According to an analysis of Biden’s plan by the Urban Institute, a District of Columbia think tank, Biden’s plan would significantly increase Social Security program revenue by taxing high earners, although much of that additional income would go toward expanding benefits.
The Urban Institute found that the measures would only extend the life of the trust funds by about five years, although they would cut the poverty rate for adult Social Security beneficiaries over the coming decades by more than half.
As of yet, Biden’s plan has not passed Congress, which oversees significant changes to the Social Security program. Some analysts believe it’s unlikely to pass.
The act is designed to encourage a greater number of employers to offer retirement plans to workers while encouraging more employees to participate.
It built upon SECURE 1.0, which passed in 2019. SECURE 1.0 aimed to boost retirement savings and expand access to retirement plans. It also increased the age at which individuals are required to start taking required minimum distributions from their qualified retirement accounts from 70½ to 72 years old.
SECURE 2.0 made further changes to the RMD start age based on birth year. For recipients born:
Those born in 1950 or earlier saw no change to their RMD start date.
“SECURE 2.0 is a huge step forward in addressing the retirement savings gap and adds more than 90 new retirement plan provisions,” says Wendy Baker, legal counsel at Human Interest, a San Francisco-based company that helps small and medium-sized businesses offer retirement plans to their employees.
One of the big changes under this legislation, says Baker, is that workers age 60 and older now have more flexibility for saving.
“SECURE 2.0 expands catch-up contributions to include participants aged 60, 61, 62 or 63, but not older than 64, by the end of the tax year,” she says.
On Aug. 29, the Biden administration announced the first 10 prescription drugs subject to the first-ever Medicare price negotiations.
In a press release, the administration said, “For far too long, Americans have paid more for prescription drugs than any major economy. But now, thanks to the Inflation Reduction Act, Medicare can directly negotiate prescription drug prices to get a better deal for seniors.”
It added that in 2022, seniors paid $3.4 billion in out-of-pocket costs for these 10 drugs.
The drugs are made by major pharmaceutical companies including Johnson & Johnson, Novartis, Bristol-Myers Squibb, Merck, Eli Lilly and Amgen.
“This initiative is designed to reduce the cost to Medicare of the top 10 drugs that cost Medicare the most,” says Chris Chen, a certified financial planner at Insight Financial Strategists in Newton, Massachusetts.
Chen says it’s unlikely any cost reductions would go directly into consumers’ pockets, but the move should result in a reduction of the overall cost of Medicare to the country, and, he adds, help pull Medicare back from insolvency.
“Of course, the pharmaceutical industry would prefer not to have to negotiate prices,” he notes.
In June, the Biden administration also introduced the Extra Help program to help seniors pay for Medicare Part D and copays. According to the White House, 19 million seniors will save $400 annually in prescription drug costs when the out-of-pocket cap falls to $2,000 in 2025. The White House also said 1.9 million Medicare enrollees with the highest drug costs will save an average of $2,500 per year.
“Although Part D premia don’t appear high, they are still difficult to afford for the vast number of retirees who have no other income except for Social Security,” Chen says.