Biden Presidency and Your Retirement

Joe Biden has become the nation’s 46th President.  Kamala Harris has made history as the country’s first Black, female and South Asian Vice President.

With a new President in office, it’s a good time to revisit Joe Biden’s retirement policy proposals:

Revising Retirement Plans

  • Revise tax incentives for retirement plans to encourage more Americans to enroll, and give lower-income earners greater tax benefits.
  • Equalize tax benefits for retirement savings – Make changes to retirement savings to benefit low- and middle-income workers. Under the current system, a taxpayer in the highest-earning bracket would see their federal tax bill reduced by 37% of however much they put into their retirement fund that year. A taxpayer in the lowest bracket of 10% would see a 10% reduction. The more you make the more you’re able to save not just because you make more money, but because you can save a greater percentage of whatever you’re able to put into retirement. Currently, if you’re in a higher tax bracket, you get a bigger tax deduction than someone at a lower tax bracket who puts the same exact amount of money into a company-sponsored 401(k) plan.
  • Equalize benefits across the income scale so working families also receive substantial tax benefits when they put away money for retirement.  Replace the current tax-deduction structure with a flat refundable tax credit or offer a tax credit to low- and moderate-income workers, resulting in an equal tax benefit.  Equalizing retirement tax benefits could mean that the person making $40,000 a year would be credited 37% of their retirement contribution — just like the person making $400,000 a year — or it could mean the credits go down for everybody.  Doing so could simplify deduction calculations and also encourage more people to save: only about 60% of people who make between $50,000 and $75,000 contribute to a retirement plan, according to the Tax Foundation.
  • Provide tax credits for small businesses to incentivize them to create 401(k) plans for lower-income workers. A similar proposal is already in the Strong Retirement Act of 2020. 
  • Access to “automatic 401(k)s” to workers without retirement savings options at their employer. While the details are limited, he’ll likely support plans like OregonSaves, where most employers are required to facilitate their workers automatically saving a percentage of their pay into an IRA administered by a state agency.  The program automatically enrolls all full-time employees in the state at no cost to employers.
  • Increase catch-up contributions.
  • Allow employers to help younger workers by adding money to retirement accounts equivalent to their student loan payments.

Raising Taxes

  • Raise federal taxes on the country’s richest people, including those earning more than $400,000 a year. That means increasing the highest individual income rate back to 39.6% for people who earn more than $1 million and taxing investment income at the same rate as wage income. 
  • Reforming Capital Gains Taxes & Estate Planning

– Adjust or eliminate “step-up basis” – Rather than basing capital gains taxes on the original cost of your assets, the basis gets reset to the new value.  That reset can eliminate or drastically reduce the amount of capital gains taxes your heir pays if they sell your assets. 

– Tax long-term capital gains like regular income, which would raise the top rate from 20% to nearly 40% for the highest earners.  

  • Expand tax benefits – Child Tax Credit during the pandemic for middle- and low-income families, Additional tax credits toward home buying, childcare and health insurance costs.

Bolster Social Security

  • Increase the minimum benefit retirees can get, along with providing increases to benefits amounts for seniors between 78 and 82.
  • Raise Social Security benefits for older seniors (between ages of 78 and 82) to receive gradual increases in their annual benefit amounts.  (Starting Social Security benefits at age 62 means accepting a reduction in monthly payouts).
  • Add a supplementary benefit for older recipients who have been collecting Social Security for 20 years or more.
  • Raise the minimum amount a retiree with 30 years of employment can receive to 125% of the poverty line, a major benefit for the lowest earning Americans.
  • Increase the amounts widows and widowers would collect by about 20% if their spouse who is receiving Social Security benefits dies.
  • Institute a new 12.4% payroll tax split between employers and employees on incomes above $400,000 (there still would not be any Social Security payroll taxes on income between $137,700 and $400,000).  Right now, the payroll taxes that fund Social Security are changed only on your first $137,700 in earnings.
  • That focus on Social Security benefits is notable, as funds are currently expected to be exhausted by 2035. In 2021, about 70 million Americans receiving Social Security benefits will receive just a 1.3% cost-of-living increase in their benefits—the smallest increase since 2017.
  • Change the way the Social Security COLA is calculated to increase benefits.
  • Extend benefits for teachers and those receiving public sector pensions.

Support Workers Over 65

  • Extend the Earned Income Tax Credit (EITC) to workers over 65. Currently, those workers are excluded from this tax benefit. (The EITC is a matching tax credit for low-income workers. For every dollar a low-income worker makes, the government matches their income with a credit dollar up to a certain amount. For very-low-income workers who may owe no tax, this means they get a refund check that is similar to a grant.  For workers over the age of 65 who receive Social Security benefits and work part time, the extension of the EITC would mean a big boost in income.)
  • Back bipartisan legislation protecting older workers from being discriminated against in the workforce.

Strengthen Medicare to Address Health Care Costs

  • Drop Medicare enrollment from age 65 to 60 to ease burden of finding individual insurance policies.
  • Include dental, vision, and hearing costs in traditional Medicare.
  • Lower prescription drug prices by allowing Medicare to negotiate with pharmaceutical companies.
  • Put an inflation cap at which drug prices can increase.
  • Allow U.S. citizens to buy name-brand drugs or generic equivalents from other countries.
  • In real terms, these measures would mean higher-earning retirees would spend less on Medigap and Medicare Advantage insurance plans. It could also mean that Medicare premiums for higher earners would be capped or go down.

Reforming the Affordable Care Act

  • Create a “public option” for health insurance, run by the government and available to people of all ages. It would, in theory, be more affordable than private market options. 
  • A new version of the ACA he’s calling “Bidencare” (the sequel to Obamacare). The new version would have an individual mandate but would also include new options for people seeking insurance, including an affordable plan similar to Medicare.
  • The Supreme Court will begin to consider this month whether the Affordable Care Act is unconstitutional. That argument stems from Trump’s elimination of the individual mandate—the penalty you had to pay if you didn’t sign up for a health care plan. 

Assist Family Caregivers

  • Give a $5,000 tax credit for informal caregivers, like family members and loved ones, as well as credits towards Social Security (similar to the 2019 Credit for Caring Act which would give caregivers a tax credit worth 30% of expenses above $2,000. (That bill limits the credit to $3,000.)
  • Allow caregivers who stepped away from paid work for at least a year to care for family members to make so-called catch-up contributions to their retirement plans. Right now, only those 50 or older can do so.

Make College Cheaper & Tackle Student Loan Debt

  • Make college more affordable by making two years of post-secondary education free, whether it be community college, trade school, or other job training programs.
  • Make public colleges and universities tuition-free for families earning less than $125,000 per year.
  • Double the maximum value of certain federal aid, such as Pell grants for low-income and middle-class individuals.
  • Provide more loan forgiveness for those who choose to work in public service, and make the existing Income-Based Repayment Plan (an Obama-era provision) even more affordable by reducing the monthly payments by more than 50%. 

Address Unemployment

  • Infuse financial support to help first responders and essential workers at state, local and tribal governments keep their jobs.
  • Grow the workforce by making investments in key industries like infrastructure, clean energy, caregiving and education.
  • Extend COVID-19-related unemployment insurance to assist those currently out of work
  • Implement an employment insurance plan in which all states enact and ramp up “short-time” compensation programs. In effect, this would allow struggling employers to avoid layoffs and keep more workers in place (perhaps at reduced hours) by having the federal government make up the difference in wages. Also known as “work sharing,” this has already been adopted by 27 states.

Bridge Racial Wealth Gap

  • Promote small business by investing more public-private money in entrepreneurs.
  • Reform opportunity zones, invest more in homeownership and access to affordable housing for Black, Brown and Native families, and provide more equity in management, training and higher education linked to the jobs of the future.
  • Strengthen retirement security and wealth, and to make certain that workers of color are paid fairly.  

Realities to Consider:

  • Now that the Democrats have a simple majority in the Senate, they can pass changes to the tax code as well as implement changes in spending.  Among the more moderate Democrats, they’re not going to want to increase the deficit too much. That’s obviously going to be a limiting factor.  And while Vice President Kamala Harris holds the deciding vote in the event of a Senate tie, the 50-50 split between Democrats and Republicans doesn’t constitute filibuster-proof power.
  • Taxes – States are running broke at the moment and will need to make up for their deficits somehow. They will need to raise more tax revenue so even if your federal tax bill doesn’t change, you should prepare for state and local taxes to go in the other direction. Hope for a decrease, but plan for an increase. 
  • Medicare – Without new legislation, there isn’t a clear way to increase coverage for seniors.  But a Biden Administration could promote more efficient cost-sharing between Medicare programs that could cap out-of-pocket expenses.
  • Social Security – The U.S. deficit soared in 2020 due to the COVID-19 stimulus, and fiscal austerity could become popular again for members of Congress during a Biden presidency. No new spending would make serious Social Security reform difficult.
  • EITC to workers over 65 – could be accomplished as a compromise with Senate Republicans because it is a tax cut, not a tax raise.
  • Social Security COLA calculation update – could happen through an Executive Order instead of legislation

While history has shown that presidents may have a minimal impact on market performance, their policy prescriptions, if enacted, could drastically improve the safety and security of your retirement.

A well-balanced portfolio appropriate for your long-term goals and risk tolerance could help you weather uncertainties.  Contact us for a sound investment strategy that should carry you through these times.

Sources:

Lisa Rowan, Kelly Ann Smith, Forbes Advisor. “How President Joe Biden Will Impact Your Personal Finances.” https://www.forbes.acom/advisor/personal-finance/your-guide-to-personal-finance-under-a-joe-biden-presidency/.  Accessed Jan. 19, 2021.

Farnoosh Torabi, Next Advisor.  “5 Ways Joe Biden’s Presidency Will Affect Your Money – and How to Act Now.” https://time.com/nextadvisor/in-the-news/what-president-biden-means-for-your-money/.  Accessed Jan. 19, 2021.

Nicole Spector, Yahoo Finance.  “What Does Biden’s Presidency Mean for Your Retirement Plan?” https://finance.yahoo.com/news/does-biden-presidency-mean-retirement-211548586.html. Accessed Jan. 19, 2021.

Hal Bundrick, Star Tribune. “How the Biden Presidency Could Impact Your Money.”  https://www.startribune.com/how-the-joe-biden-presidency-could-impact-your-money/600012784/.  Accessed Jan. 19, 2021.

Taylor Tepper, Forbes Advisor.  “How Would a Biden Presidency Aid Your Retirement?”  https://www.forbes.com/advisor/retirement/biden-presidency-retirement/.  Accessed Jan. 19, 2021.

Will Kenton, Money Talks News.  “How Biden’s Presidency Could Affect Your Retirement.” https://www.moneytalksnews.com/slideshows/how-bidens-presidency-could-affect-your-retirement/. Accessed Jan. 19, 2021.

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