The most recent Social Security trust report warned that funds will dry up by 2035, but financial advisor Karen McIntyre remains hopeful that retirees will continue to collect substantial benefits for a very long time.
And she also believes that payments will be increased rather than reduced.
“Firstly and most importantly, the vast number of retirees depend on Social Security for at least half of their income and the goal is not to leave Americans impoverished,” she said. “So I believe Social Security will continue and the question is how do we make that happen.’’
McIntyre, a principal and senior financial advisor with Wescott Financial Advisory Group in Philadelphia, Pa., acknowledged there is political pressure to ensure that Social Security hangs around. She pointed out that benefits overall will be reduced but there will be increased taxation of the benefits so that the net-net may be lower after taxation. “But I do not believe that payments itself will be reduced,’’ she said.
McIntyre noted that Social Security benefits are sometimes exclusively 100 percent of retirement income for retirees in places like rural Kentucky or Tennessee who are not high wage earners. “So the pressure from a political perspective to ensure that these benefits lasts is really what sets the stage right now for shoring up the current payment and ensuring that the program is stronger by leaning on workers who are currently paying into the system,’’ she said.
She said she believes there are some changes coming down the pike that are likely and will have significant impact on strengthening the trust fund. And although these changes are under consideration, McIntyre is optimistic that they will become law. “I think you cannot undermine the importance of political landscape and that our older population is increasing and there is significant political pressure to not put in place other programs that will benefit the elderly, and the major program is Social security,” she said.
One of those changes, McIntyre noted, is that every year Social Security administration increase the wage base on which benefits are calculated, and it will significantly increase above the 2019 wage base of $132,900, she said, adding that some politicians have debated not just increasing the cap but removing it.
McIntyre also said the income tax calculation that is made on Social Security benefits now if your adjusted gross income reach a certain point, which is around $40,000, you pay taxes on up to 85 percent of your Social Security income, which is somewhat arbitrary,’’ she said. “And I believe that it’s likely that 100 percent of Social Security benefits will be subject to taxation and I believe that base will be decreased such that the net effect to retirees who are in the higher tax bracket will be a smaller net benefit.”
Another likely change, she said, is that employees do not pay into Social Security on any retirement account contributions like 401(k)s, and it’s likely that every dollar will be subject to Social Security taxation whether that be 401(k)s or any other tax-deferred account.
She added that there are a variety of strategies that are under consideration so that the benefits for people who are collecting are not adjusted, rather the pressure will be put on people who are in their income earning years, “because we know that Americans are getting older and we have to ensure that Social Security lasts for a longer period of time than it was initially meant to cover,’’ she said.