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Donna Cournoyer

Donna Cournoyer
In Market Updates

February 2025 Market Recap: Turbulence Part Deux

Our January Market Update highlighted “beneath the surface” turbulence in the financial markets. In February, that turbulence emerged, pushing stock prices lower – and pressure accelerated into early March.

The US stock market hit a new all-time high on February 19. But the mood in the US financial markets, which had been generally positive since election day, shifted due to investors’ nervousness driven by:

  1. The lofty prices of big tech stocks
  2. The possibility of slower economic growth
  3. Repercussions related to trade policy and tariffs

Since mid-February, technology shares have been leading the way lower for US stocks. From the February peak to the close of trading on March 10, the Nasdaq 100 technology-focused stock index declined by 12.9%.

Declines in the broader stock market have been less pronounced. The S&P 500 Index of large company stocks has declined by 8.6% from the mid-February peak.

Interestingly, foreign-company stocks have held up relatively well, with the benchmark MSCI EAFE Index of 21 developed countries (excluding the US and Canada) rising by about 1% since February 19.

The repercussions related to trade policy and tariffs are unclear at this point because the policies themselves are unclear, with the administration taking an on-again, off-again approach to both policy formulation and implementation.

However, consumers’ concerns amped up in February. Worries about the future direction of the US economy were displayed in two monthly surveys:

The University of Michigan’s Index of Consumer Sentiment for February declined sharply from the January reading, and inflation expectations took a big step up from January. This monthly survey polls at least 500 individuals each month from across the US.

A separate survey of consumers, conducted by The Conference Board (which interviews approximately 300 consumers each month) showed similar results: a steep decline in consumer confidence, marking the third straight decline, and an increase in inflation expectations.

Below is a chart showing the Consumer Confidence Index, published on The Conference Board’s website. The blue line shows the history of the Consumer Confidence Index. The grey bars indicate periods of economic recession.

According to The Conference Board, a reading below 80 generally indicates a potential recession is ahead, based on consumers’ short-term outlook for income, business, and labor market conditions. Currently, the data is healthy distance from signaling recession.

A senior economist of global indicators at The Conference Board had this to say about February’s survey: “References to inflation and prices in general continue to rank high in write-in responses. Most notably, comments on the current administration and its policies dominated the responses.”

Without clarity on policies that will affect jobs and the cost of goods and services, consumer concern likely will stay high, and consumer activity may downshift.

Because consumers make up the largest component of the US economy – consumer spending accounts for roughly two-thirds of Gross Domestic Product, or GDP – financial market participants smell trouble, which has pressured stocks.

For the month of February, large-company foreign stocks (MSCI EAFE Index) came out on top and gained 3.1%. US investment-grade bond returns (Bloomberg Aggregate Bond Index) also were appealing, with a gain of 2.2%.

Large-company US stock returns, measured by the S&P 500 Index, declined by 1% in February. Technology shares, measured by the Nasdaq 100 Index fell by 2.7%, and Small-Company US Stocks fell by 4.8% (CRSP US Small-Cap Index).

Here’s a snapshot of February market performance (note that returns from the first week of March are excluded from the chart below):

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Donna Cournoyer
In College Planning

Private College Scholarships: The Search is Worth It

Our colleague and college specialist Donna Cournoyer contributed the following update for college planning

Searching for private college scholarships is not always viewed as an effort with a lot of pay off – no pun intended!

Considering high college costs, complicated preparation and application processes, and jam-packed schedules, many students and parents don’t feel like private scholarship dollars are worth the extra effort and time.

I strongly believe, however, that most college applicants should dedicate some time researching and applying for private scholarships before college, and continue to do so during their college years as well.

There are many private scholarships available, and if you use a targeted approach, it can pay off.

The Search

What types of scholarships are available?

Private scholarships are awarded by many different types of businesses, organizations, schools, and other entities based on a variety of criteria.

These criteria may include academic achievements, artist talent, athletic talent, leadership roles, career aspirations, a written essay, and many more.

When you begin to consider searching and compiling a list of private scholarships you will apply for, think about your personal strengths and interests and abilities and how those have shown through in high school, and focus on these along with your intended area of study if you have chosen a path and a major.

This will help you sort through the many scholarships available, and help you with a targeted approach.

When to Apply

Start doing research in your junior year in high school and make a list with application dates and deadlines to be ready for your senior year.

Senior year– Applications open during a wide time range- anywhere from November to submission deadline of sometime through about April for the following Fall college start.

Once you start your college freshman year, many colleges have internal, non-financial need scholarships available to apply for in your second to fourth year. Some can be major specific, or GPA based, etc.

Be sure to find the office who awards them. Start by asking your financial aid office (if it is not them, they will know where to direct you to). You can also search for private scholarships as well. Do this during your winter break.

Where to Apply

First, check your high school guidance office and your school website– they are likely to have information on many local scholarships.

Use recommended sites for your search, from trusted college advisors, high school guidance staff, etc.

Use ONLY free scholarship search sites. If a fee is requested, move on. Qualified sites do not charge a fee.

Check the websites of the colleges and universities you are applying to– they will likely have scholarships you can apply for as well that are outside of merit scholarships.

BEST SOURCE: Local Scholarships from local businesses and organizations- Inquire at local groups, organizations- social, religious, etc., that you belong to or may know you and your family. There is less competition than online national databases.

• Download my list of qualified search sites here to begin: Private Scholarships

Why It’s Worth It

A few $200-$500 scholarships may seem inconsequential when peering up at the high costs of college.

However, there are plenty of opportunities to receive scholarships with higher dollar amounts attached, and they can add up.

If the time researching and applying is targeted and well spent, it may be fruitful in turning up additional significant resources for college, which is beneficial regardless of your financial situation.

Every dollar you receive in scholarships means a lower out-of-pocket cost for college, and therefore a greater opportunity to save and invest or increase spending capacity for other necessary items.

Other Tips for High School Students

  • When essays are required, write your own. Do not have a parent or adult write them and do not use AI. It will be noticed and could get you disqualified!
  • Write your personal story from the heart. Write about your personal struggles and triumphs, growth and dreams. Let the committees get to know YOU.
  • You can build these essays from your college admission essay. Use the work you have already done (hopefully) and create your scholarship essays from the considerable thought you have already given to your admission essay, and tailor for each scholarship application.
  • Think of applying for scholarships as a part-time job. Once you receive some awards, think about how many hours you have spent working on applications, and do the math: it is likely a decent return.

This work itself will help prepare you for college, because it helps build skills with regard to time allocation, organization, research, self-reflection, and more.

All the work and preparation done in high school is a resource to help you shine on your scholarship applications.

Good Luck!

-DC

Donna Cournoyer
In Reading Recommendations

Reading Room: Atomic Habits: Tiny Changes, Remarkable Results

James Clear has a seemingly simple life thesis: changes that seem small and unimportant at first will compound into remarkable results if you’re willing to stick with them.

He learned this the hard way, through a slow recovery from a traumatic sports-related accident in high school that ultimately led to success on the college athletic field.

This book resonates with me because Clear takes the idea of compounding, which is simultaneously simple to calculate and remarkable to behold, and applies it to everyday life.

Clear’s extensive research into human behavior helped him identify key components of habit formation and develop a straightforward framework for making change in our lives possible.

He posits that a habit is a behavior that has been repeated enough times to become automatic. The ultimate purpose of good habits, contends Clear, is to solve the problems of life with as little energy as possible.

Clear calls his framework “The Four Laws of Behavioral Change” and presents a simple set of rules we can use to build better habits. They are: (1) make it obvious, (2) make it attractive, (3) make it easy, and (4) make it satisfying.

Since your habits are shaped by the systems in your life, Clear discusses his Four Laws throughout Atomic Habits to demonstrate how to use them to create a system in which good habits emerge naturally.

The author is also a compelling speaker. You can hear James Clear discuss the ideas in this book on The Peter Attia Drive podcast Episode #183.

-RK

Donna Cournoyer
In Financial Planning

Medicare Advantage Open Enrollment

Our founder Susan Moore contributed the following update for Medicare planning

The Medicare Advantage Open Enrollment Period (MA OEP) is currently underway and runs from January 1 to March 31, 2025.

This is an important time for individuals enrolled in Medicare Advantage plans to review their coverage and make any necessary changes.

What is Different about the 2025 MA OEP?

For the 2025 MA OEP, there are no significant changes to the enrollment process itself. However, it’s important to be aware of broader updates affecting Medicare coverage in 2025:

  1. Changes in Plan Availability: There is a reduction in the number of Medicare Advantage plans available in 2025. Some insurers that previously offered Medicare Advantage have left the market. Additionally, some healthcare providers have stopped accepting certain Medicare Advantage plans, so it’s critical to verify that your preferred providers are still in-network.
  2. Adjustments in Premiums and Benefits: While the average monthly premium for Medicare Advantage plans has decreased to $17.00 in 2025 from $18.23 in 2024, some plans may have adjusted their core benefits or reduced supplemental offerings like gym memberships. It’s essential to review any changes to your plan’s benefits and costs.
  3. Introduction of a $2,000 Out-of-Pocket Cap for Part D: Starting in 2025, Medicare Part D plans will implement a $2,000 annual cap on out-of-pocket prescription drug expenses. Once you reach this limit, you won’t have to pay additional costs for covered drugs for the remainder of the year.

What You Can Do During MA OEP

During this period, if you are currently enrolled in a Medicare Advantage plan, you have the following options:

  1. Switch to a different Medicare Advantage Plan: If your current plan no longer meets your needs, you can change to a different Medicare Advantage plan.
  2. Drop your Medicare Advantage plan and return to Original Medicare: You can disenroll from your Medicare Advantage plan and switch back to Original Medicare (Parts A and B). You can also enroll in a standalone Part D prescription drug plan if needed. Note that in most states when someone switches to Original Medicare from Medicare Advantage, insurers can require medical underwriting in order to purchase a Medigap (Medicare Supplement) policy. This means the insurer can deny Medigap coverage if you have certain health conditions. Four states (CT, MA, ME, and NY) have implemented protections that prohibit underwriting in these situations.
  3. Adjust Prescription Drug Coverage: If your Medicare Advantage plan includes drug coverage, you can change to another MA plan that better suits your medication needs.

Key Considerations

When evaluating your Medicare Advantage options, here are some factors to consider:

  • Provider Network: Ensure your preferred doctors, specialists, and hospitals are included in the network of any plan you are considering.
  • Drug Coverage: Check whether your medications are covered and if there are changes to the formulary or pricing.
  • Out-of-Pocket Costs: Review premiums, deductibles, and co-pays to understand your total potential expenses.
  • Additional Benefits: Some plans offer extra benefits such as vision, dental, hearing, and fitness memberships. Compare these benefits to see if they align with your needs.

Common Questions

  • Can I switch plans multiple times during this period? No, you are allowed to make only one change during the MA OEP.
  • What if I miss the deadline? After March 31, you generally cannot make changes until the next Annual Enrollment Period (October 15 – December 7), unless you qualify for a Special Enrollment Period due to specific life events.

Next Steps

If you’re considering a change to your Medicare Advantage coverage, we encourage you to act early to avoid delays.

Two important resources for help and more information are the Medicare web site, and a State Health Insurance Assistance Program (SHIP) counselor, available at your local senior center.

-SM

Donna Cournoyer
In Financial Planning

Becoming Averse to Loss Aversion

For most of us, when markets go down, anxiety goes up.

And since markets haven’t gone down substantially for some time, it’s possible that angst is waiting in the wings for a lot of us and could be set loose by the next downturn.

I am not anticipating an imminent demise of the bull run in stocks. But after two great years of returns, it’s important to remember that corrections are normal occurrences.

On average, we can expect stocks to drop 14% from recent peaks in any given year, according to research from JP Morgan Asset Management (recoveries typically follow closely on the heels of these declines).

And it’s important to remember that we as humans are hard wired to disproportionately fear financial losses relative to appreciating similarly sized gains.

We obviously can’t control what happens in the financial markets. But we can control how we respond to financial market developments.

The goal of this article is to provide more information about the concept of loss aversion; explain how it affects investors; and share strategies to overcome it.

Learning to become averse to loss aversion is a strategy that should yield positive results over the long term for your portfolio.

What is Loss Aversion?

Loss aversion is a key principle in behavioral finance introduced by Daniel Kahneman and Amos Tversky in Prospect Theory. Our friends at research outfit DataTrek have this to say about Loss Aversion:

  • Classical economics has it that the gain or loss of $1 has the same “utility”, both on the upside and downside.
  • Daniel Kahneman and Amos Tversky proved this was not the case with their work on Prospect Theory, published in 1979, with Kahneman winning the Nobel Prize in 2002.
  • The possibility (or “prospect”) of losing a particular amount of money weighs about twice as heavily on the human psyche as the prospect of gaining that same amount of money is welcoming.
  • Simply put, we are hard coded to be risk-averse, which is probably biologically optimal but not when it comes to investing.

This asymmetry – that people experience the pain of losses about twice as intensely as they experience the pleasure of equivalent gains – can lead investors to behave irrationally, often making suboptimal decisions due to an emotional response rather than a rational evaluation of risk and return.

How Loss Aversion Affects Investors

  • Excessive Conservatism: Investors may hold too much cash or invest heavily in low-risk assets, such as bonds, due to an outsized fear of losses. This risk aversion can cause them to miss out on long-term market growth.
  • Holding onto Losing Investments Too Long: Investors often refuse to sell losing stocks because doing so would “lock in” a loss. This can lead to further declines in portfolio value if the asset continues to underperform.
  • Selling Winners Too Soon: The fear of losing unrealized gains can prompt investors to sell winning stocks too early, limiting their upside potential while holding onto losing positions in the hope of a rebound.
  • Panic Selling in Downturns: During market downturns, loss-averse investors may sell off assets at a loss to avoid further perceived pain. This often results in missing out on the subsequent recovery.

Strategies to Overcome Loss Aversion

Investors can take several steps to mitigate the negative effects of loss aversion.

  1. Maintain a Long-Term Perspective
  • Historical Context:Market downturns are normal and historically temporary. The S&P 500, for instance, has endured numerous recessions, bear markets, and crashes but has always recovered over time.
  • Review Past Recoveries: Looking at previous downturns (e.g., 2008 financial crisis, 2020 COVID-19 crash) can provide reassurance that patient investors tend to be rewarded.
  1. Avoid Emotional Decision-Making
  • Recognize Emotional Triggers: Fear and anxiety can drive investors to sell at the worst possible time. Understanding that these emotions are natural but not always rational can help maintain discipline.
  • Pause Before Making Major Moves: Implement a 24- or 48-hour rule before making significant financial decisions to avoid impulsive reactions.
  1. Stick to a Predefined Investment Plan
  • Set Portfolio Rules in Advance: Establish clear rules for buying, selling, and rebalancing to avoid making decisions based on market noise.
  1. Use Mental Accounting to Categorize Risk
  • Investors can separate their portfolios into different “buckets,”such as:
    • A short-term stability bucket (cash, bonds) for near-term needs.
    • A growth bucket (stocks, real estate) for long-term wealth building.
  • This mental separation reduces the fear of short-term lossesaffecting immediate financial security.
  1. Rebalance Rather Than Panic-Sell
  • Automatic Rebalancing:If stock prices fall, rebalancing forces investors to sell overperforming assets (like bonds) and buy underperforming assets (stocks) at a discount.
  • Stay within Target Allocations:Keeping the portfolio’s stock-to-bond ratio aligned with the original strategy ensures disciplined investing.
  1. Use Dollar-Cost Averaging (DCA)
  • Invest Regularly Regardless of Market Conditions: Investing a fixed amount regularly reduces the emotional burden of market timing.
  • Buy More Shares at Lower Prices:Instead of fearing lower prices, DCA allows investors to accumulate more shares when prices are low, boosting returns when markets recover.
  1. Maintain Cash Reserves
  • Emergency Fund:Having 6–12 months of living expenses in cash reduces the need to liquidate investments during downturns.
  • Dry Powder Strategy:Investors who keep some cash on hand can take advantage of market downturns by buying assets at depressed prices.
  1. Diversify to Reduce Portfolio Volatility
  • Asset Allocation: Spreading investments across stocks, bonds, real estate, and alternative assets helps mitigate losses.
  • Low-Correlation Assets:Investments like Treasury Bills and Treasury bonds can provide balance when equities decline.
  1. Avoid Market Timing
  • Missing the Best Days Hurts Returns:Data shows that missing just a few of the best market days (which often occur after the worst days) significantly lowers long-term returns.
  • Stay Invested:Rather than guessing market bottoms, staying in the market increases the likelihood of benefiting from recovery.
  1. Turn Market Declines into Tax-Saving Opportunities
  • Tax-Loss Harvesting: Selling losing investments to offset capital gains taxes can improve after-tax returns.
  • Roth Conversions:Converting traditional IRA funds to a Roth IRA during downturns allows investors to pay taxes at lower asset values, leading to greater tax-free growth.

The key to overcoming loss aversion during a market downturn is sticking to a well-thought-out plan, staying diversified, and avoiding knee-jerk reactions.

Implementing these strategies can help you manage their emotions, take advantage of market opportunities, and build long-term wealth.

-RK

Donna Cournoyer
In Market Updates

January 2025 Market Recap: Tech & Tariffs Turbulence

Stock and bond market performance for the first month of 2025 was pleasing.

Foreign stocks gained 4.8%, US small company stocks climbed 3.9%, US large company stocks went up 2.7%, and technology shares rose by 2.1%. Bonds were in the black, too: high-quality, intermediate-term debt returned 0.5%.

However, there was turbulence beneath the surface of the stock market, mainly due to developments in the technology sector.

One part of the Artificial Intelligence environment is Large Language Models (LLMs). These AI-powered systems are trained on massive amounts of text data, which facilitate human-like text responses to a wide range of prompts and questions.

ChatGPT is a widely recognized and utilized LLM. It was developed by OpenAI, of which Microsoft holds a minority ownership stake.

All the big tech companies, including Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft and Tesla are spending huge amounts of money investing in LLMs and anticipating big future payoffs on this invested capital.

In addition to these well-recognized firms, a constellation of lesser-known US companies (big and small) that supply software, equipment, storage, and energy to support AI initiatives have been riding the AI wave higher.

In mid-January, a new chatbot called DeepSeek caught the attention of tech investors for several reasons: it was developed cheaply; it runs on less-expensive equipment; it is fast; and it is good. Also, its maker is a small Chinese company, not a Silicon Valley behemoth.

Whether or not DeepSeek becomes a true competitive threat to US technology companies is yet to be seen.

But it was a shot fired across the bow of US technology companies, and some US tech stocks swooned for a few days at the end of the month.

Why does this matter for US investors? The main reason is that the US stock market has become more dependent on ever-higher profits, and ever-higher stock prices, from big tech.

The information technology sector has grown from about a quarter of the US stock market a few years ago to more than one-third today.

When the future profitability of US tech companies is called into question, and when tech stocks slip, it’s harder now for stocks in other sectors to pick up the slack.

This also means that even US investors who hold well-diversified portfolios are likely to feel pain if a correction in tech stocks materializes.

In January, tech turbulence was contained to a few days, and stocks generally finished higher at the end of the month.

However, the DeepSeek tremor was a reminder that troubles for technology companies, if sustained, would probably have far reaching effects for all investors.

Regarding the safer side of investing, the “big news” in the bond market for January was: no news.

The Federal Reserve held their first FOMC meeting of 2025, where interest rate policy is reviewed and discussed, and… nothing happened.

Market participants are now expecting the Fed to stand pat for a while, and to keep the target for short-term interest rates steady for the next six months. This contrasts with the “rate cuts” that occurred during the second half of 2024.

Why is no news from the Fed big news?

It likely means savers will continue to enjoy a satisfactory rate of return on their guaranteed money that is kept in high-yield bank savings accounts and bank CDs.

With the lower bound of the Fed Funds target rate at 4.25%, this probably means short-term CDs are likely to provide a 4%+ annual percentage yield (APR) during the first half of 2025.

It also means that the Fed remains vigilant in their fight against inflation.

If the Fed is successful in convincing market participants that inflation is indeed under control, it should translate to a hospitable environment for investors who own intermediate- and longer-term bonds.

With 10-Year Treasuries yielding about 4.5%, it’s reasonable to expect 5%-plus returns for 2025 from bond allocations in investment portfolios, if inflation, and inflation expectations, remain contained in 2025.

But a trade war could be problematic for financial markets.

An emerging risk, especially to the bond market, is a new tariff regime. On February 1, President Trump announced new tariffs on a range of goods coming into the US from Canada, Mexico, and China.

Trade is huge, diverse, and complex, so the ultimate impact of higher duties isn’t easy to know. A lot depends on size, width, and length: how high tariffs go, how broadly they’re applied, and how long they last.

If tariffs come and go quickly, the inflationary impact will be minimal. But a new regime with high tariffs applied to many trade partners that lasts for an extended period could usher in higher inflation.

If expectations about future inflation go up substantially, this will likely mean higher bond yields, with lower prices and lower returns for bonds – especially for intermediate and longer-term bonds and bond funds.

And if history does rhyme (to paraphrase Mark Twain) then resurgent inflation may well prove to be a challenge for stocks, too.

Performance for the month of January is pictured below:

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Donna Cournoyer
In Reading Recommendations

How to Retire

Researcher Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar, recently published How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement.

In the book, Benz interviews academicians and practitioners from the world of personal finance and retirement, with specialties in financial planning, tax, estate planning, insurance, asset allocation, Social Security, healthcare, and hospice care.

Each chapter is structured in a Question-and-Answer format, so the reader is able to engage as an observer of an interview.

In addition to lots of good advice about managing finances in retirement, Benz also moves beyond dollars and cents.

She says: “When, and how to retire is less than 50% related to money. Yes, you need to have the funds. But more important, you need:

  • A network of people who care about you
  • To practice healthy habits and take care of your body
  • A plan for your days
  • Activities that bring you joy”

The book is both information rich and thought provoking and will be a good resource for those in retirement, or approaching that milestone.

-RK

Donna Cournoyer
In College Planning

High School Juniors in Focus

A new year often brings with it a chance to review and renew plans and aspirations and to take action on important items and goals.

January is a good time to solidify college planning goals and to start taking action on steps toward the goals you have for seeing your student off to college.

It may seem like a long way off, but the next year and a half likely will be a blur!

Junior year is important for admissions applications, so keep your high school Junior’s focus on their studies and activities.

Here are some steps you can add to your checklist and start completing now:

January-March

  • Register for Spring SAT and/or ACT exams. Consider the SAT Subject Test.
  • Make a list of important criteria for which college you will attend: do you want a large university? A small community? What majors interest you? What sports and activities? Are there unique services you need? Will the school have these? What is the Cost of Attendance? And so on.
  • Make your college list and find out when they have Spring tours- begin visiting schools on your list. Start with the closer schools.
  • Do some online research on your school list and see if they measure up to your criteria and find out all you can and make lists of comparisons, including price!

April-May

  • Finish your year well! Keep your grades up- schools will be requesting your junior transcripts for college applications.
  • Consider adding activities to your schedule if you are not involved in many.
  • Continue to visit colleges. Many Open Houses are in Spring. Make any travel plans ahead of time, if needed. Make a list of questions to ask beforehand.
  • Read some college applications so it is not all new to you in Fall.
  • Make a list of potential people you may want to ask for letters of recommendation. Teachers, employers, counselors, etc.
  • Explore summer opportunities for work and include college campuses if you are near one.

For more information on checklists for Summer, Fall and Senior Year, please see previous articles:

-DC

Donna Cournoyer
In Financial Planning

Social Security Fairness Act

On January 5, 2025 the Social Security Fairness Act became law. It will provide new or additional Social Security benefits for about three million individuals who receive government pensions from jobs not covered by Social Security.

Two parts of the law governing Social Security payments have been eliminated: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The new law eliminates the reduction of Social Security benefits that resulted from WEP and GPO.

Upon signing the legislation into law, President Biden said those affected will receive lump sum payments from 2024 in 2025. President-elect Trump also supported the legislation.

Additional details of the Social Security Fairness Act relating to WEP and GPO are:

  • The new law repeals the Windfall Elimination Provision (WEP) which reduced Social Security or disability benefits for certain public sector workers such as teachers, nurses, police officers, and firefighters who receive pensions from jobs where they didn’t pay Social Security payroll taxes.
  • WEP applied to 2.1 million beneficiaries, or 3.1% of the total in 2022, according to the Social Security Administration. Most retirees affected by the WEP have pensions that are higher than average Social Security benefits, the Center on Budget and Policy Priorities said.
  • The law also eliminates the Government Pension Offset (GPO) which reduces Social Security benefits for about 750,000 spouses, widows, and widowers who receive pensions from jobs not covered by Social Security taxes.

Most state and local government workers (and all federal workers hired in 1984 or later) are in jobs covered by Social Security. Pensioners who worked in Social Security-covered employment in their government jobs will not receive increased Social Security benefits from the law.

According to the non-partisan news source TheHill.com, which focuses on US politics and government policy, actually making the new benefit structure a reality will be a challenge for the Social Security Administration (SSA).

An example of the additional administrative burden on the SSA: prior to the new law, individuals affected by the Government Pension Offset may not have been eligible to receive any Social Security spouse or survivor payments, so a number of these individuals likely did not file for Social Security and, as a result, are not in the SSA’s computer systems.

The Congression Budget Office expects the SSA will have to process new applications as a result of the legislation, and the new applications will lead to an extra 70,000 people coming onto the rolls for payments.

The Hill comments that SSA’s administrative budget has been in sharp decline over several years, and the SSA recently testified that it now has “one of the lowest staffing levels in 50 years.”

In their most recent communication from January 6, the SSA said: “The Social Security Administration is evaluating how to implement the Act. We will provide more information as soon as available.”

Keep in mind that the Social Security Fairness Act is retroactive to January 2024, so beneficiaries affected by the repealed provisions should receive lump-sum payments for benefits lost during 2024.

If you have been affected by WEP and GPO, what can you do to ensure that you receive your benefits?

  1. If you previously have filed for Social Security, the SSA is not recommending that you take action at this time (though you may wish to verify that your contact and banking information with the SSA are up-to-date)
  2. If you are receiving a public pension and are interested in filing for Social Security benefits, you may file online at ssa.gov/apply
  3. Keep an eye on the SSA website for further announcements at: ssa.gov/benefits/retirement/social-security-fairness.act
  4. Watch your email for communication from your former employer on this topic
  5. Check your bank statements closely on a regular basis during 2025 to see if / when your payment has been adjusted and to verify that you’ve received a lump sum payment related to 2024
Donna Cournoyer
In Financial Planning

Retirement Plan Super Catch Ups

Savers age 50 and older who are participants in retirement plans are permitted to do “catch-up” contributions of $7,500 in 2025. Add this to the annual elective deferral limit of $23,500, and over-50s can put up to $31,000 into their retirement plans.

This applies to most 401(k) participants, as well as those with 403(b)s, governmental 457 plans, and the federal government’s Thrift Savings Plan.

A subset of older 401(k) plan participants can make even higher catch-up contributions, starting in 2025. SECURE Act 2.0 increases the catch-up contribution limit for those participants who are age 60, 61, 62, or 63.

For these savers, the deferral limit is the greater of $5,000 or 150% of the normal “age 50” catch-up contribution limit ($7,500 in 2025). The 2025 super catch up equals $11,250, which means the total eligible for deferral for this subset is $34,750. This limit will be indexed for inflation starting in 2026.

Workplace plans need to offer this “super catch up” option for workers to be able to make a super catch-up contribution. Not all plans have this feature. Plan participants age 60-63 should check with their retirement plan administrator to see if this option is available.

Once a retirement plan participant reaches age 64, they revert to the age 50 catch-up contribution in effect for that year.

Altogether, the availability of “super catch-up” contributions could be attractive for many folks within the applicable age range and who have the funds available to do so. Consider that a couple where each partner is eligible would be able to contribute nearly $70,000 in total!

-RK

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