Worried About Retirement? Biden’s Plan May Help
President-elect Joe Biden has many plans for older Americans, including broadening access to retirement vehicles, lowering healthcare costs, and bolstering Social Security.
This is good news, particularly since the coronavirus pandemic has impacted many seniors’ finances. “These will comfort those who perhaps did not save enough or were fearful of outliving their retirement savings,” F. Michael Zovistoski, UHY Advisors managing director, told Yahoo Finance. “If this plan stops the dwindling of retirement savings, it would have a direct effect of increasing the inheritance of the next generation.”
A divided Congress could prevent Biden’s plans from becoming a reality. But if Democrats flip the Senate in January, there is a high probability the former Vice President’s proposals will pass. Yahoo Finance explains what you should know about Biden’s plan.
Better Access To Retirement Plans
Biden’s plan would give lower- and middle-class Americans more tax benefits from 401(k)s, IRAs, and other retirement vehicles. According to the proposal, ordinary earners receive over $200 billion annually from tax benefits from retirement contributions. Yet two-thirds are given to the top 20% of households. However, the strategy fails to outline how the government would balance those benefits.
“This can be done using a flat tax credit for those who save for retirement compared to allowing savings for retirement to come out of paychecks on a pre-tax basis,” Zovistoski explained. “But those in higher tax brackets may see a reduction in the tax benefit relating to saving for retirement, if the flat rate is too low.”
Additionally, small businesses that provide a retirement plan for employees would qualify for other tax advantages. These write-offs could counteract the expense of establishing a plan. If not, employees without an employer-sponsored retirement plan will be able to sign up for an “automatic 401(k)” so they can save.
Lower Healthcare Costs
A recent Gallup poll found that two-thirds of Americans are paying more for their medications. Biden’s plan would aim to lower the cost of prescription medication and expand Medicare. It also details five changes to the current system that could make prescriptions more affordable:
- Permitting Medicare to negotiate prescription costs with drugmakers
- Letting a neutral review panel examine the value of specialty biotech drugs
- Restricting inflation-related price hikes on brand, biotech, and exorbitantly-priced generic drugs
- Allowing Americans to purchase their medications from other countries
- Increasing access to safe generic prescriptions
Moreover, the plan would allow older adults to enroll in Medicare as early as 60 — a move that would give 23 million access to Medicare, consulting firm Avalere Health found.
Bolstering Social Security
Biden’s plan would raise the threshold of Social Security payments to 125% of the federal poverty level. If implemented in 2020, 12.8% of seniors 65 and older living in poverty would receive about $15,950 annually.
However, older adults seeking these benefits must still finish 30 years of qualifying employment to be eligible for the full payment. Recipients who worked less would receive smaller benefits.
Biden would also change the inflation benchmark used to calculate cost-of-living adjustments for Social Security beneficiaries. The current model is the CPI-W, which monitors households with no less than half of their income from clerical or hourly positions. Biden’s plan would utilize the CPI-E, which determines cost-of-living by how much older Americans 62 and older pay for health care.
Under the plan, caregivers of children under 12 or relatives with disabilities would qualify for Social Security credits and payments equivalent to the median national monthly salary. This would occur whenever a caregiver works at least 80 hours.
Widows would also be eligible for higher Social Security payments. Biden’s plan would offer them three-quarters of the entire benefit their deceased spouse received, provided the adjusted amount doesn’t exceed what the standard couple receives from Social Security.
Social Security recipients receiving payments for 20 years or more would also receive more benefits. “The individuals who did not retire early and have been retired for 20 years are probably in the third stage of retirement. t that point their largest cost is typically prescription drugs and other medical costs,” Zovistoksi noted.
President-elect Biden has also promised to stop penalizing teachers who acquire retirement benefits from multiple sources and let them receive payments earlier. Data from the Urban Institute found that almost one-third of pension plans have lowered the portion of earnings a pension substitutes. Additionally, half have increased the age educators can collect their pensions.
Funding For Social Security
President-elect Biden supports a 6.2% Social Security tax on workers earning $400,000 or more annually. This, as well as other changes proposed by Biden, would prevent 1.4 million Americans from living in poverty by 2021.
However, experts remain dubious that lawmakers will approve such a measure. Patrick Rush, who wrote Gain Big and Give Back: Financial Planning with Intention, believes that taxing those earning $140,000 to $200,000 per year could be a compromise.
“You could probably get a lot more people taxed in this range and more partisan agreement,” Rush explained. “You could get a lot more people behind the idea of a progressive tax that will distribute wealth.”
- Singh, Dhara. “Biden’s Plans Will Help Those ‘Fearful of Outliving Their Retirement Savings’.” Yahoo!, Yahoo!, 23 Nov. 2020, money.yahoo.com/biden-plan-retirement-savings-181837629.html.