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Financial Planning

Understanding the Future of Social Security

Our colleague and MFA founder Susan Moore contributed the following update on Social Security

As financial advisors, a frequent concern we hear from clients revolves around the future of Social Security benefits. Many are understandably worried about whether these benefits will be available when they retire, especially amidst reports of potential funding shortfalls.

We’ll share below the latest projections for Social Security funding and then explore the measures being proposed to ensure its long-term viability.

Current Projections for Social Security

The Social Security program is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). However, demographic shifts such as declining birth rates and increasing longevity are leading to fewer workers supporting more retirees, which puts a strain on the system.

According to the most recent Social Security Trustees Report, the Social Security trust funds are projected to be depleted by 2035, one year later than projected in last year’s report, if no changes are made.

At that point, incoming payroll taxes will be sufficient to pay 83% of scheduled benefits. This projection highlights the need for reform to ensure that full benefits continue to be paid.

Proposed Measures to Strengthen Social Security

Several measures have been proposed by policymakers to address the funding challenges faced by Social Security. These proposals typically fall into three categories: increasing revenue, reducing promised future benefits, or a combination of both. Here are some of the most discussed options:

Increasing Revenue

  • Raise the payroll tax rate: One proposal is to increase the payroll tax rate, which is currently 12.4% (split between employers and employees), to bring more funds into the system.
  • Lift the payroll tax cap: Currently, payroll taxes are not collected on incomes above a certain threshold ($168,600 in 2024). Removing or increasing this cap could significantly boost Social Security’s funding.
  • Introduce new revenue streams: Some have suggested introducing new sources of income for the trust fund, such as taxes on certain types of unearned income.

Reducing Benefits

  • Increase the full retirement age: Gradually raising the age at which retirees qualify for full benefits could reduce the system’s expenditures.
  • Modify the cost-of-living adjustments (COLA): Tying COLA to a different index that grows more slowly could decrease the annual increase in benefits, thus saving money over time.

Combination Approaches

  • Means testing: Reducing benefits for high-income retirees could help focus resources on those most in need.
  • Balanced approaches: Some proposals suggest a balanced approach that includes both modest tax increases and benefit reductions, aiming to spread the impact across different demographics and income groups.

One thing that’s important to note: all of the proposed measures described above would impact future Social Security recipients.

None of the measures that we have seen (except for the possible limit on the annual COLA) propose changes to benefits for those who are already receiving Social Security benefits.

What This Means for You

For individuals planning for retirement, the uncertainty surrounding Social Security underscores the importance of retirement planning. Depending on Social Security alone for retirement income is increasingly risky.

Here are a few strategies to consider:

  • Increase Personal Savings: Boost your personal savings rate and maximize contributions to retirement accounts like IRAs and 401(k)s.
  • Maintain a financial plan: We work with our clients to develop their financial plans and to update those plans to ensure that they’ll be able to reach their goals and can look forward to a sound financial future.
  • Stay Informed: Keep abreast of changes to Social Security legislation and consider how these might impact your retirement planning. And don’t hesitate to let your congressional representatives know what you think!


While the challenges facing Social Security are concerning, especially for those who have not yet retired, remedies are being considered.

With comprehensive financial planning, we can help you prepare for a variety of future scenarios. As your financial advisors, we are here to help you navigate these uncertainties and develop a retirement strategy that ensures your financial security, regardless of what the future holds for Social Security.


Estate Plan Refresh

Spring cleaning season is upon us. As the weather warms and the days lengthen, we typically have a higher level of motivation to clean and refresh our living spaces.

This is also a good time to consider an Estate Plan refresh.

As situations in life change our estate plans should be updated. For example, my oldest and middle sons are now in their mid-20s, and we’ve used this as a trigger to review our estate plan and revise certain elements of it.

It’s advisable for every estate plan to contain the following four legal documents:

  1. Will: specifies how a person’s assets should be distributed after their death, and includes an executor who will manage the estate and ensure the will is carried out as written.
  2. Durable Power of Attorney: grants another person the authority to make financial decisions on behalf of the individual if they become incapacitated.
  3. Medical Power of Attorney(aka Health Care Proxy): grants another person the authority to make medical decisions if the individual is unable to do so themselves.
  4. Advance Directive(aka Living Will): specifies an individual’s preferences regarding medical treatments they want to receive or refuse, particularly concerning end-of-life care.

Other elements of estate planning include:

  • Trusts, which can be used for various purposes, such as minimizing estate taxes, protecting assets from creditors, or managing assets for minor children.
  • Beneficiary Designations, which allow an account owner or policy holder to specify who will receive the assets in those accounts directly upon the holder’s death, bypassing the probate process.
  • Guardianship Designations, which allow parents to name a guardian to care for minor children or dependent adults if the parents or current guardians are no longer able to do so.
  • Letter of Intent, which is a non-binding document intended to guide the executor or beneficiaries on the personal wishes regarding the distribution of assets or funeral arrangements.

If you need help with sorting through estate planning issues, or thinking about how to go about a refresh if you haven’t updated your plan in some time, the two guides provided below are a good place to start (click on the images to download a pdf).


Issues to Consider When Creating an Estate Plan

Issues to Consider When Reviewing an Estate Plan

Inherited IRA RMD Relief – Again

For the fourth year in a row, the IRS has provided relief on Required Minimum Distributions (RMDs) for beneficiaries of Individual Retirement Accounts (IRAs) who are subject to the 10-year payout rule.

This class of IRA beneficiary is known as “Non-Eligible Designated Beneficiaries” (beneficiaries who are not surviving spouses) and who inherited IRAs where the original owner died after December 31, 2019.

The original SECURE Act, which took effect in 2020, eliminated the stretch IRA for most IRA and Roth IRA beneficiaries whose original owner died after 12/31/2019, and replaced it with a 10-year withdrawal rule.

On April 16, the IRS issued Notice 2024-35, which excuses RMDs missed in 2024 for Non-Eligible Designated Beneficiaries.

The relief does not apply to RMDs for beneficiaries who inherited IRAs before 2020.

Pre-2020 inheriting beneficiaries are subject to the pre-SECURE Act rules, which allow any designated beneficiary to stretch distributions out over their own lifetime, resulting in smaller RMDs and a smaller annual tax bill.

We provided more information on this topic in our August 18, 2023 blog post entitled: Heir Drama: Inherited IRA Update. The IRS also expects to issue final regulations on this topic later in 2024.

If you fall into the category of Non-Eligible Designated Beneficiary, you may want to consider the impact to your income tax situation over time by delaying distributions. Holding off could mean future spikes in taxable income, and ultimately paying more income tax over time.




New Tax Rules for 2024

The laws that stipulate how we must handle our personal tax situation are complex and dynamic. Changes can be built into existing statutes and shifting government priorities can also lead to adjustments to the rules.

For example, SECURE 2.0, the 2022 law designed to bolster retirement savings, has over 90 provisions with different effective dates.

Staying on top of what’s new in tax, and making the most of the changes, is an important part of the financial picture for most individuals.

Below are ten key changes in tax law for 2024:

  1. Standard Deductions: Married couples get $29,200 plus $1,550 for each spouse 65 or older. Singles can claim $14,600, or $16,550 if age 65 or older.
  2. Income Tax Brackets: Income tax rates are unchanged, but the tax brackets have widened out. For example, in 2023, income from $0 – $22,000 was federally taxed at 10%, and income from $22,001 – $89,450 was taxed at 12%. For 2024, the upper bound of the 10% bracket shifts to $23,200, and the 12% range adjusted to $23,201 – $94,300.
  3. Capital Gains Tax: Tax rates on long-term capital gains and qualified dividends do not change, but income thresholds to qualify for the various rates go up. For example, the 0% rate for capital gains applies at taxable incomes up to $94,050 for joint filers and $47,025 for singles.
  4. Payroll Taxes: The Social Security annual wage base for 2024 is $168,600, which is an $8,400 hike. The Social Security tax rate on employers and employees remains 6.2%, and both pay the 1.45% Medicare tax on all compensation, with no cap.
  5. 401(k): the maximum contribution is $23,000. People born after 1975 can contribute an extra $7,500.
  6. IRA & Roth Contributions: the contribution cap for IRA and Roth accounts is $7,000 for those up to age 49. If you are age 50 older, the cap is $8,000.
  7. Roth IRA Ceilings: Contributions phase out with Adjusted Gross Income (AGI) of $230,000 to $240,000 for couples and $146,000 to $161,000 for singles.
  8. IRA Deduction Phaseouts: Couples covered by 401(k)s begin to lose a portion of the tax deduction benefit at $123,000 of AGI and lose it completely at $143,000. For singles, the range is $77,000 – $87,000. If only one spouse is covered by a plan, the phaseout range for deducting pay-ins for the uncovered spouse is $230,000 – $240,000.
  9. QCDs:The Qualified Charitable Distribution cap is indexed to inflation, so IRA owners 70 1/2 and older can transfer up to $105,000 in 2024 from their IRAs directly to charity without having to pay tax on the withdrawal.
  10. 529s: Funds in 529 education accounts can be rolled over tax-free to a Roth IRA. There is a $35,000 lifetime cap and the 529 must be open for more than 15 years.


The Catch on Catch-Ups: 401k Update

SECURE 2.0 was a package of legislation signed into law in December 2022 as a follow-up to the Setting Every Community Up for Retirement Enhancement Act of 2019 (aka SECURE 1.0).

There has been some confusion since the passage of SECURE 2.0 regarding the new treatment of 401(k) contributions for older workers.

Upon passage of the legislation, it was assumed that beginning in 2024, employees who are 50 and older, and whose annual pay exceeds $145,000, would need to make catch up contributions only to a post-tax Roth 401(k). Currently, the maximum allowable 401(k) contribution from employees is $22,500, and the catch up is $7,500, for a total of $30,000 for employees 50 years and older.

The administrative aspects of this impending change caused concern by the administrators of 401(k) plans. The IRS recently provided guidance to clear up the ambiguity. Now, the IRS Is giving two years of administrative relief so payroll providers and others have extra time to implement the change.

For employees who are 50 and older, if your income exceeds $145,000, you can continue to make your catch-up contributions into a pre-tax (traditional) 401(k) account in 2024 and 2025.

Starting in 2026, catch-up contributions for 401(k) plans will need to be made after tax and directed to a Roth version of the 401(k).


Medicare Update: Enrollment Is Open

Medicare open enrollment period starts October 15 and continues through December 7 each year. During this period, Medicare enrollees can make certain changes in their coverage. Here is what we know about Medicare costs for 2024.

Everyone who has Medicare coverage (Traditional Medicare or Medicare Advantage) gets Medicare Part A free, but pays for Medicare Part B.

The Centers for Medicare & Medicaid Services (CMS) hasn’t said yet how much the base cost of Part B will cost in 2024, but the annual Medicare Trustees report in March forecast the monthly price to rise from $164.90 to $174.80, a 6% increase, in 2024.

Here are a few things to keep in mind:

If you are on Traditional Medicare and plan to stay on Traditional Medicare:

You may be able to lower your annual drug costs by switching to a different Plan D. For example. there are 24 Part D drug plans in Massachusetts, and each has a different premium, deductible, co-pay, and formulary (list of covered drugs).’

To compare plans, go to the site and set up your account. In the “What do you want to do?” section, select “Open all options”, then “Find health & drug plans.”

 If you want to switch from Medicare Advantage to Traditional Medicare:

Some people switch from Medicare Advantage to Traditional Medicare because they don’t like the restricted network of an Advantage plan, or because frequent copays for services have become expensive.

You can switch from a Medicare Advantage plan to traditional Medicare during the Medicare Open Enrollment period, or during the Medicare Advantage Open Enrollment Period (January 1 to March 31).

If you make this change and you want drug coverage, be sure to sign up for a Medicare stand-alone prescription drug plan (Plan D), unless you have creditable drug coverage from another source. If you do not, and you decide to sign up for Part D coverage later, you may face a penalty for late enrollment.

And if you want a Medicare Supplement Plan (or Medigap Plan, which covers most out of pocket costs) you’ll need to sign up for that then, too.

In most states, Medigap insurers are not required to sell you a policy if you don’t meet the medical underwriting requirements. If you are able to enroll outside of your open enrollment period, you might have to pay higher premiums.

MA residents note, though: You can join Medicare Supplement plans without the need for medical underwriting at any time of the year in Massachusetts, and you cannot be denied coverage nor be charged more due to your age or health status.

 Will I have to pay more for Medicare because of my income?

Some people pay more for Medicare Part B and Part D based on income. This additional payment is called IRMAA (Income-Related Monthly Adjustment Amount).

Your tax return for 2022 will be used to determine whether you will be subject to an IRMAA charge for 2024. If you retired in or after 2022, or had another life-changing event (e.g., marriage, divorce, death of spouse, etc.) you can file form SSA-44 to request that your IRMAA amount be reduced or eliminated.

IRMAA charges have not been released yet for 2024, but are expected to be about 6% higher than in 2023.

If you have questions or would like help evaluating your Medicare options, please let us know.



Heir Drama: Inherited IRA Update

For high drama, summer is high season for moviegoers, thanks to Hollywood blockbuster film releases. Those with Inherited Retirement Accounts have been experiencing heir drama since 2020 thanks to Congress and the IRS – and the spectacle continues.

Congress passed the Secure Act in 2019 which changed many of the long-standing rules governing IRAs and other retirement accounts.

One of the more impactful changes was to the post-death distribution rules for retirement accounts held by “Non-Eligible Designated Beneficiaries” (essentially beneficiaries who are not surviving spouses).

The new rules applied to IRAs whose original owner died after January 1, 2020 did away with favorable tax treatment called the “Stretch IRA” for most Non-Eligible Designated Beneficiaries.

According to the new rules, rather than being able to take IRA distributions based on their own life expectancy, Non-Eligible Designated Beneficiaries were required to empty their inherited accounts within ten years of the death of the original owner.

The drama results from the interpretation of the requirements for timing of the distributions for Non-Eligible Designated Beneficiaries. The wording of the Secure Act was somewhat vague and therefore caused confusion about how heirs needed to take distributions.

Many observers expected that Non-Eligible Designated Beneficiaries would not be required to take annual distributions during this 10-year period as long as the account was fully distributed by the end of the 10th year.

In February 2022, the IRS issued Proposed Regulations that would make a subset of these beneficiaries (those who inherit accounts from decedents who died on or after the date whereby they were required to begin taking distributions) subject to both the 10-Year Rule and annual Required Minimum Distributions (RMDs).

The source of the drama was that these were merely proposed regulations, so beneficiaries remained in limbo regarding whether they would need to take distributions in 2022 (or should have taken them in 2021) to avoid potential tax penalties.

Then in October 2022 the IRS issued a notice waiving any potential penalties for Non-Eligible Designated Beneficiaries for 2021 and 2022 for missing RMDs from their inherited retirement accounts, which effectively eliminated RMDs for those years.

The tax saga continued to play out, because the IRS remained silent about the requirements for 2023 and onward.

Heirs who’ve been enjoying the tax-related theatrics were treated to a new release from the IRS in July 2023. Notice 2023-54 eliminates penalties for Non-Eligible Designated Beneficiaries for failing to take RMDs for 2023 and pushes forward RMDs yet again until at least 2024.

But the drama rolls on, because the IRS has yet to provide information as to when final regulations might be expected that could clarify RMD requirements for future years.

From a tax planning perspective, although Non-Eligible Designated Beneficiaries do not have to take distributions from their inherited accounts, they can still make voluntary distributions.

If you fall into the category of Non-Eligible Designated Beneficiary, you may want to consider the impact to your income tax situation over time by delaying distributions. Holding off could mean future spikes in taxable income, and ultimately paying more in tax over time.

If you have questions, Susan and I can help you look more closely at your tax situation. We can recommend tax-related strategies, including retirement account distribution strategies, with the goal of reducing the amount of tax you’ll pay over the long term.

If you’re an existing client, we encourage you to send us a copy of your 2022 tax return so we can review it and help minimize any potential drama related to your future tax situation.


Have a Social Security COLA and a Smile

Social Security recipients could get a 3.1% increase next year in their benefit, compared to the 8.7% Cost of Living Adjustment received in 2023.

The Social Security Administration will announce the actual cost of living adjustment for 2024 in October.

To arrive at the figure, SSA will compare the average consumer-price index from the third quarter of 2023 with the average data from the same period last year.

The Senior Citizens League, a nonprofit organization, estimated the underlying data that goes into the calculation to arrive at 3.1% and will update its projection monthly until the actual adjustment is announced in the fall.

In its May press release, the Senior Citizens League posted some interesting statistics on inflation, specifically regarding the fastest growing costs for older Americans.

The note highlights that between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually, while the cost of goods and services purchased by typical retirees rose by 141%, averaging about 6.2% annually over the same period.

For many retirees, Social Security income is significant, but only part of their total income picture.

However, this information highlights the pernicious effect of inflation, the need to keep an eye on recurring expenses, and the importance of a long-term financial plan that takes into account the effects of rising costs over time.


Time to Schedule a Tax Review

Susan and I have been working with a planning tool that helps us review your tax situation and spot opportunities for tax savings. The technology is terrific and requires a scanned version of your most recent tax return to start the process.

For this month’s Planning Point, we have a request: please upload a copy of your 2022 tax return to one of our secure file sharing systemsShareFile or Advyzon.

After we receive your 2022 tax return, we will reach out to you to schedule some time for a tax review. Thank you in advance for providing your information!

Social Security Situation: Preparing for Potential Benefit Changes

Social Security has been around since 1935 and was designed as a contributory system where workers pay into a fund that will provide benefits when they retire.

The program has two parts: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), each supported by a Trust Fund and overseen by a Board of Trustees.

The Social Security Act requires that the Trustees report annually to Congress on the actuarial status and financial operations of OASI and DI Trust Funds. The latest report was released on March 31, 2023.

Issues regarding the long-term health of Social Security have been raised by the Trustees responsible for the Social Security system.

Having some perspective on the current state of the fund, and its future solvency, is important for retirees who receive benefits, and for those who expect to rely on benefits in the future.

At the end of 2022, OASI and DI were providing benefits to about 66 million people, and during the year, an estimated 181 million people had earnings covered by Social Security and paid payroll taxes on those earnings.

The total cost of the program in 2022 was $1.244 trillion, and total income was $1.222 trillion. Income comes from two sources: non-interest income (contributions from workers) which was about 95% of total income, and interest earned on investments, which accounts for the remaining 5%.

Under the Trustees’ current assumptions, Social Security’s total cost is projected to be higher than its total income in 2023 and all later years. Total cost first exceeded total income in 2021.

From an actuarial standpoint, the Social Security program remains solvent for the next ten years. The chart below from the Social Security Administration shows the projected Trust Fund balance through 2033.

The problem is that, unless changes to the system are made soon, the Trust fund reserves will be depleted by 2034 and collections from workers will not be enough to maintain the benefits of recipients.

The reason for the impending depletion is demographics: the retirement of Baby Boomers is increasing the number of beneficiaries faster than the increase in the number of workers paying into the system.

To put the Trust fund and the system on a path of long-term sustainability (which the actuaries define as the next 75 years), the Trustees suggest the following:

  1. Revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax increase of 3.44 percentage points, to 15.84%;
  2. Or scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of 21.3% applied to all current and future beneficiaries
  3. Or scheduled benefits would have to be reduced by 25.4% if applied only to those who become eligible for benefits in 2023 or later
  4. Or some combination of the above

The Trustees conclude with a call to action for lawmakers to address the projected Trust fund shortfalls in a timely way so that necessary changes can be phased in gradually to give workers and beneficiaries time to adjust to the changes.

The Trustees’ sentiment of giving workers and retirees time to prepare and adjust to impending changes is prudent.

Demographics are unlikely to change quickly, and the action that Congress decides to take (or not take) is unknowable. The proverbial “can” could be kicked down the road by politicians for several years until the problems become more acute.

One way to prepare for potential future changes to Social Security benefits is to ‘stress test’ your financial plan. Our MoneyGuide financial planning software allows us to do this. The Social Security module in the software facilitates testing for a range of benefits reductions and helps you see how this affects the long-term results of your financial plan.

Susan and I recognize that contemplating negative impacts to your financial plan can cause discomfort. We’re able to model different Social Security outcomes and work with you to think through financial planning options.

 Visualizing a range of outcomes and having a plan for adjusting to different circumstances prior to any change in Social Security may ease anxiety and help you look more confidently toward the next decade and beyond.