In the high heat of this election cycle, Social Security reform will likely slide closer to the front burner. If not, it should.
As an investment adviser who disproportionately works with near- or currently- retired people, I see firsthand the important role Social Security plays in their overall financial picture.
For a large proportion of retirees, Social Security represents the majority of their retirement income. For this reason alone, digging into our presidential candidates’ Social Security reform proposals is a high priority.
Bernie Sanders appears to provide the most detailed Social Security reform proposals on record. Naturally, he focuses on increasing the program’s funding to help shore up its long-run financial sustainability.
Sanders primarily proposes raising the cap on wages subject to payroll taxes earmarked for Social Security. Under his plan, today’s maximum threshold of around $120,000 per year in earnings subject to this tax would remain. His new proposal is to restart collecting the payroll tax once a worker’s earnings exceed a new threshold of $250,000.
Importantly, in exchange for these additional contributions, affected taxpayers would receive no additional benefits and the money raised would be used to support the benefits of those with a lower history of earnings.
Hillary Clinton’s proposals center on her opposition to retirement age hikes, privatization plans or payroll tax increases for the middle class. Clinton has expressed openness to Sanders’ idea of raising the cap on earnings subject to Social Security payroll taxes, but provides no specific plans.
Donald Trump’s main idea for Social Security is to produce faster economic growth. However, I am not aware of an analysis of how economic growth affects the long-run financial position of Social Security. Beyond the economic growth argument, Trump has also suggested that wealthy people voluntarily return their benefit checks and that he’d reduce “waste, fraud and abuse.”
Marco Rubio and Ted Cruz both support increasing the retirement age and lowering the inflation rate for benefit payments. Both also support the idea of younger workers developing private accounts within the system.
While Cruz’ plan for privatization appears similar to Bush’s previously failed attempt, Rubio’s private account proposal appears to be designed as a supplementary source of retirement savings, rather than a replacement for Social Security.
Social Security is the ultimate political hot potato, no doubt. Understanding the candidates’ reform proposals – with details that allow for deeper analysis and thoughtful debate – is a basic right of voters. The goal of any reform, as I see it, is to reach a collective view on how we’ll maintain Social Security as a pillar of financial support to the millions of retirees who need it. Benign neglect won’t get the job done.
Jason P. Tank, CFA of Front Street Wealth Management will hold a free educational workshop on “Navigating Social Security’s New Rules” on March 9th at 6:30pm in the McGuire Room at the Traverse Area District Library. Call (231) 714-6459 with questions, visit frontstreet.com/workshop to learn more.
