Advisors who are already helping clients understand the recent changes in Social Security benefits—including no increase in the monthly benefit next year—might want to hold the phone for a moment.
Legislation introduced recently in the U.S. Senate proposes to boost recipient’s Social Security benefits in 2016 with a one-time payment of $580.
This is even though the government has already determined that there will be no cost-of-living adjustment (COLA) that would increase Social Security benefits paid out next year.
This and earlier Social Security developments may be a source of uncertainty or confusion among older clients who are already collecting Social Security benefits or may be doing so soon. The questions can range from how might this happen, does it have legs, and what does it mean in terms of retirement planning?
The $580 would be an “emergency payment” to about 70 million seniors, veterans, people with disabilities, and others, according to Sen. Elizabeth Warren, D-Mass. She and Sen. Bernie Sanders, D-Vt., jointly introduced the Seniors and Veterans Emergency (SAVE) Benefits Act along with and 15 other co-sponsors, all Democrats.
The one-time payment could cover almost three months of groceries for seniors or a year's worth of out-of-pocket costs on critical prescription drugs for the average Medicare beneficiary, according to a press release from Warren’s office.
The amount of the proposed one-time payment equals 3.9 percent of the average annual Social Security benefit, the same percentage increase in compensation that CEOs at the country’s top 350 firms averaged last year, the staff added.
The cost would be covered by closing a tax loophole that allows corporations to write off executive bonuses as a business expense for "performance pay." This idea has bipartisan support, and is based on the House Republican Ways and Means Committee Chairman’s 2014 tax reform proposal, according to a statement from Warren’s office.
According to the Social Security Administration, the determination not to increase monthly Social Security checks is based on a required calculation of inflation.
By law, the Social Security COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the federal agency said. This is measured from third quarter of the last year a COLA was determined to the third quarter of the current year. Since there was no CPI-W increase on this basis, Social Security benefits won’t go up next year.
The $580 payment will not make much of a difference in overall retirement planning for mass affluent and wealthy clients. However, the senators are aiming their legislation at the less fortunate. “Two-thirds of seniors rely on Social Security for the majority of their income,” Warren noted.
Even so, insurance and financial advisors will probably encounter many clients who are confused about the changes to Social Security that they’ve been hearing about. This confusion could provide an opportunity to educate and inform, through ads, web messages, speaking engagements, social media and more.
Last month, Congress and President Obama agreed to a budget deal that eliminated Social Security “claim now, claim more later” strategies involving File-and-Suspend and Restricted Applications for spousal benefits. These strategies are primarily used by high earners, who stand to lose up to $50,000 in Social Security benefits, experts say.
Despite support from both sides, the Warren-Sanders legislation faces an uphill climb in Congress. But the idea is not without precedent.
According to Warren’s office, Congress gave Social Security recipients an emergency payment of $250 in 2009. In 2010, a similar emergency measure was introduced but did not pass.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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