The Social Security Expansion Act is being introduced to congress, sponsored by Bernie Sanders, with the “goal” of increasing the solvency of the Social Security fund. Sadly, by 2035, Social Security benefits will have to be reduced by 25% if nothing is done. Senator Elizabeth Warren states that the Social Security trust fund would remain solvent until 2096 if these changes are put into place.

But a lot of the proposed changes in the bill are controversial, to say the least—including how they propose we increase payments into the fund. I’ll cover four of the main goals of this bill in this episode of Retirement Made Easy and share my thoughts on each one. Don’t miss it!

You will want to hear this episode if you are interested in...

• [0:53] A big thank you to my listeners
• [1:49] Why retirement planning HAS to be customized
• [5:37] The Social Security Expansion Act
• [7:50] Goal #1: To increase the benefits for all recipients 
• [9:23] Goal #2: Change the cost-of-living adjustment calculation 
• [10:28] Goal #3: Making high-income earners pay more
• [12:41] Goal #4: Increasing the Net Investment Income Tax 
• [13:50] My thoughts on the proposed bill

Goal #1: To increase the benefits for all recipients

The bill starts with a fact sheet, which includes these sad facts:

• One in seven seniors relies on Social Security for more than 90% of their income
• Half of Americans 55 and older have nothing saved for retirement
• The average Social Security benefit is $1,688 per month

Many seniors are struggling, which is why they’re trying to overhaul social security. That’s why their first proposal is to increase the benefit for all Social Security recipients by $200 per month (which would apply to everyone, even those on Social Security who aren’t seniors). 

Goal #2: Change the cost-of-living adjustment calculation 

The bill also proposes changing how the cost-of-living adjustment is calculated. Right now they calculate based on a CPI-W index. They want to change it to a CPI-E index, with the “E” being short for the elderly. It makes a lot of sense. Seniors spend money on doctor visits, medical bills, prescriptions, etc. It’s smart to track the cost of living of people in that age group and this index would be a better indication of spending habits for recipients.

Goal #3: Making high-income earners pay more

Currently, you pay into social security on the first $160,200 that you earn. You pay 6.2% and your employer pays 6.2%. The proposed change is trying to hit high-income earners.

Let’s say you make $1,000,000. Right now, this person is paying 6.2% into social security on the first $160,200. Anything they earn above that doesn’t require paying into social security. This bill proposes that for every dollar they make above $250,000, they’d pay 6.2% into social security. 

That’s another $46,500 that this person would have to pay that they wouldn’t have had to pay otherwise. But it doesn’t stop there.

Goal #4: Increasing the Net Investment Income Tax

Anyone making $250,000 or more already has to pay a net investment income tax of 3.8% on capital gains on investments (stocks, bonds, etc.). The bill proposes increasing this tax by 12.4%, taking the net investment income tax to 16.2%.

My thoughts on The Social Security Expansion Act

We currently have a divided congress, so the chances of this bill passing are slim. The bill is also asking politicians—i.e. high-income earners—to vote for a bill that will tax their friends and supporters. Secondly, I think the bill overestimates the tax revenues they’ll get. If you slap an additional 12.4% tax on high-income earners, they will strategically pivot. 

The extra $200 a month would be a permanent increase for everyone. But many people don’t need the extra $200 per month. The increase should be proposed based on need, not a blanket policy. 

The amount people get now is based on how much they paid into social security over the years. Your social security check should be based on how much you paid in, not how much someone else paid. It doesn’t seem fair.

I know there are a lot of people hurting and inflation is negatively impacting retirees. But I’m not sure this bill is the answer. Listen to the whole episode to hear my thoughts!

Resources & People Mentioned

• 3 Steps to Retirement Planning
• The Social Security Expansion Act
• What Social Security’s Cost of Living Increase in 2022 Means for You, Ep #69 
• How Rising Interest Rates Will Impact Your Retirement, Ep #121

Connect With Gregg Gonzalez

• Email at: [email protected] 
• Podcast: https://RetirementMadeEasyPodcast.com
• Website: https://StLouisFinancialAdvisor.com
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