Far-Reaching Effects of This Pandemic on Social Security and Taxes
Long after the restaurants and hotels are open again, the economic impact of the COVID-19 pandemic will still be felt by many individuals and the country. During this time of widespread unemployment, less is collected in payroll taxes that fund Social Security, while emergency federal spending has increased significantly. Here are potential far-reaching effects of this pandemic on Social Security and taxes.
The State of Social Security
The 2020 Social Security report projects that the fund for retirement benefits will run short in 2034. According to the report, payroll taxes would cover 76% of promised benefits. However, these figures refer to before the coronavirus lay-offs: With increased joblessness, Social Security could be in jeopardy as less is collected in payroll taxes. There aren’t currently plans to raise payroll taxes. In fact, there is the possibility of a payroll tax cut in response to the COVID-19 crisis.
Even without a payroll tax cut, high unemployment will lead to reduced revenue, and to more people claiming benefits early. In 2009, 42% of 62 year-olds claimed benefits, up from the usual 37%. If there’s a similar trend this time around, it will mean more strain on the already strained system. While it’s unlikely that Social Security will ever go away completely, there could be adjustments like benefit cuts or higher taxes.
The recent surge in government spending and an already large deficit could mean a larger tax bill in the future. The CARES Act alone cost over $2 trillion, and Federal Reserve Chairman Jerome Powell recently called for more federal spending. U.S. government debt could soon rise to 130% or 140% of gross domestic product compared to last year when it was around 100%. Many experts predict that this could lead to higher taxes in the future, as it did after the government spending during WW2. Also, keep in mind that the Tax Cuts and Jobs Act will expire at the end of 2025. This may mean you need to pursue different strategies or update your estate plan.
Better than reacting to change is planning for it: There are ways an advisor can help you with tax strategies, including long-term strategies. If we’re enjoying historically low tax rates right now, should you take advantage? A financial advisor can help you create a long-term tax minimization strategy as part of a comprehensive retirement plan. Contact us to find out how we can create a plan to fit your unique needs.
3 Things to Know Before Making Summer Travel Plans
The COVID-19 pandemic has resulted in many things, including canceled trips. Americans are now wondering about summer travel plans, and if it’s wise to make them before the country fully reopens. Just because everything isn’t completely back to normal yet doesn’t mean you can’t or shouldn’t take a vacation this summer – even if it means staying closer to home than you originally planned. Here are three things to know before making summer travel plans.
Can and Will You Retire in a Crisis?
Life is unpredictable, and there are a number of events that can impact our finances, from global pandemics to personal crises. And while adjustments sometimes may need to be made to get back on track, no one wants to put off an event like retirement because they feel forced to. It’s important to take stock of what you have and what you’ll need if you’re nearing or entering retirement. No rule says you must put off retirement, or that your desires are beholden to the state of the world when you reach retirement age.
3 Ways to Stay Safe As We Get Back to Normal
America is starting to reopen, but that doesn’t mean the threat of the coronavirus is gone. While we can all be thankful for looser social distancing measures, it’s still important to think about safety. Here are 3 ways to stay safe as we get back to normal.