We’re talking about Senator Bernie Sanders’ proposal to expand Social Security. He’s already announced he’s running for president in 2020 so this proposal is one you need to watch. Let’s take a closer look.
A few days ago, Senator Bernie Sanders released his proposal to reform Social Security. It can really be summed up in three words:
Scrap The Cap
This is not the first time he’s proposed such legislation.
A Major Platform Piece
This was one of his key platform pieces when he ran for president in 2016. Now that he’s announced he’s running again in 2020, you’re probably going to see this a few more times so you need to make sure you understand this.
In fact, I would say that even if he drops out of the race early…you’ll see Social Security reform as a central part of any candidate’s platform in the upcoming election.
And just a side note to the Republicans…WAKE UP if you don’t want to be known as the party that doesn’t care about social security! In the past few weeks there have been two serious proposals to reform social security and they were BOTH sponsored by Democrats. Enough of the political stuff…
5 Key Changes Proposed to Social Security
There are 5 key changes in Senator Sanders’ proposal that deserve the most attention. As of the time of this recording, the text of the Bill has not been released, so I’m depending on summaries and fact sheets mostly published by Senator Sanders’ office. If you watched my video on The Social Security 2100 Act, you’ll probably notice some similarities, but there are some big differences too and I plan to do a side by side comparison at a later time.
The most notable difference is going to be number 5. For anyone that files as an S corp, or if you just have an investment account that produces interest, dividends or capital gains, this could be huge.
#1 – Benefit Increase
The first change is a benefit increase. Without the text of the bill its hard to tell how this will be accomplished but I’m sure it will be through a change to the SS formula where the lower earnings get credited to a benefit at a higher rate.
This is also a feature of the SS 2100 Act and it will increase benefits by about 2% on average.
#2 – Cost Of Living Adjustments
The second change is how the cost of living adjustments are calculated.
Currently the SSA uses the CPI-W. There is another inflation measurement that isn’t official, but the Bureau of Labor statistics has been updating it for some time on an experimental basis. It’s called the CPI-E and it is meant to track expenses for households where at least one member is 62.
If you look at a comparison of these two measurements, there are certain categories that are higher for older Americans, which means that the CPI-W, the current method, isn’t keeping up.
#3 – Children’s Benefits
The third notable change is to increase the age for which children are eligible for a benefit.
Currently, a child is eligible for a benefit if a parent retires, is disabled, or dies. However, that benefit stops when the child turns 18, or 19 if they are still in high school. This would extend that age to 22 if the child is in college or vocation training.
#4 – One Trust Fund
The fourth change is to to combine the two SS trust funds into one trust fund.
Currently, there is a trust fund set up for retirement and survivor benefits, known as the old age and survivors insurance fund or OASI, and then there is the disability insurance fund, known as DI.
When you pay your 12.4% SS taxes, 10.6% goes to the retirement and survivors fund and 1.8% goes to the disability fund. Unless you’re self employed, you only pay ½ of that and your employer pays the other half.
The rational behind combining the two trust funds is that even though these two trust funds are already collectively referred to as the OASDI fund, there are arguments among the politicians when transfers need to happen between the funds. Combining these would simplify the accounting.
#5 – Increase to the Maximum Wage Base
Then there is the big change… And that is to increase the maximum wage base. But this one has a twist. Currently, you pay SS taxes on the first $132,900 in wages or self employment income. Amounts above that are not subject to SS taxes. Senator Sanders’ proposal has the tax kick back in when income reaches $250,000. But this isn’t just for wages…This will also include all investment income. And it’s not clear whether an individual will receive any credit to his or her SS benefit from the excess taxes they’ll have to pay.
That is the quick summarized version of the Bernie Sanders’ plan, but as new details come out, I’ll be sure to keep you informed.
Before we go I want to thank you for taking the time to get informed. Being informed gives you choices – and can make a big difference in YOUR RETIREMENT! Please continue to stay informed!
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Thanks for reading…have a great day.