Your ability to enjoy a secure retirement may already have been a risky proposition before the Covid-19 crisis. Today, you could be facing an even steeper uphill battle thanks to the crisis.
Prior to the coronavirus lockdowns and the resulting mass unemployment, about half of working family members between the ages of 30 and 59 risked a lower standard of living in retirement, according to the Center for Retirement Research at Boston College. In July, that estimate rose to 55%, and it’s even higher among older Americans who are closer to their golden years.
Given these stark realities, Joe Biden’s retirement proposals are among his core campaign issues. Here’s how a potential Biden administration could impact retirement for all Americans.
Joe Biden’s Retirement Policy Proposals
- Increase Social Security benefits, especially for lower earning Americans, and pay for it by raising taxes on those earning more than $400,000.
- Drop the age of Medicare eligibility to 60 and attempt to lower prescription drug prices.
- Provide a $5,000 tax credit to caregivers looking after their spouses or parents.
America’s Retirement Savings Crisis
You’re probably going to live longer than you think: About two-thirds of pre-retirement American men underestimate how many years the average 65-year-old male has left, according to the Stanford Center on Longevity, while half of women make the same error. (Skeptical readers can use this handy John Hancock life expectancy calculator to see how many more years actuaries give them.)
While a long life beats the alternative, it also increases your chances of outliving your retirement savings. Of course, this is only possible if you have something saved: According to the Federal Reserve, about a quarter of American workers have nothing socked away for retirement.
And Americans who do have retirement savings face an environment where low-risk investments like savings accounts, government debt and even some investment-grade corporate bonds yield very little. As a result, they’re taking on more risk in the reach for yield, says Intrepid Capital chief executive Mark Travis.
“A lot of savers have been pushed into stocks to earn better returns,” says Travis.
Biden’s policies are unlikely to change these realities. There is little chance he’ll appoint Federal Reserve officials interested in raising rates, especially in a low-growth environment. So low rates are likely here to stay.
Biden Would Bolster Social Security
Nearly half of elderly Americans rely on Social Security for 50% of their monthly income. The core plank of Biden’s retirement proposals would be to bolster Social Security with larger payouts and new taxes.
You can begin claiming Social Security benefits at age 62—and unsurprisingly, given the insufficient retirement savings of so many Americans, this also happens to be the most common age to begin receiving benefits. Starting payments this early, however, means accepting a reduction in monthly payouts.
Biden has specifically promised help remedy this by raising benefits for older seniors, for whom Social Security payouts have not kept up with costs. Under the Biden plan, seniors between the ages of 78 and 82 would receive gradual increases in their annual benefit amounts.
Additionally, Biden’s plan raises the minimum amount a retiree with 30 years of employment can receive to 125% of the poverty line, a major benefit for the lowest earning Americans. He would also increase the amounts widows and widowers would collect by about 20%.
Right now the payroll taxes that fund Social Security are changed only on your first $137,700 in earnings. To help offset the additional costs of his policy proposals, Biden would institute a new 12.4% payroll tax split between employers and employees on incomes above $400,000 (there still would not be any Social Security payroll taxes on income between $137,700 and $400,000).
Biden Would Strengthen Medicare to Address Health Care Costs
The average American couple who retires at age 65 will spend nearly $300,000 on health expenses, according to Fidelity—and this figure doesn’t include expensive long-term care costs. While you should expect a high price tag for health care, you never know when big bills will pop up.
After all, these costs could arrive at any time, even earlier in retirement. Medicare doesn’t kick in until age 65, leaving younger retirees to rely on their state’s exchange plans, which often have high deductibles.
And even when you’re covered by Medicare, you’ll still be on the hook for expenses. Steve Feinschreiber, a senior vice president at Fidelity, estimates that 15% of a retiree’s overall annual expenses include health costs, like premiums and prescription drugs. Moreover, nearly half of people who make it to 65 will end up paying for some long-term care.
To address these deficiencies, Biden plans to drop the Medicare enrollment age to 60, which would ease the burden of finding individual insurance policies. He’s also vowed to lower prescription drug prices by allowing Medicare to negotiate with pharmaceutical companies, capping the rate at which drug prices can increase and allowing Americans to buy cheaper drugs from abroad.
Biden Would Offer More Assistance for Family Caregivers
Retirement means more than looking after just your own health. Many Americans have to look after older family members, too, adding extra burdens and costs for caregivers.
A majority of men and a third of women who stopped working before 62 said “that health limited their capacity to work,” according to a 2017 NIH study “Growing Older in America: the Health and Retirement Study.” This suggests that many Americans may have to scale back their careers or face additional costs to care for themselves, a sick spouse or an elderly parent.
A separate Harvard Business School report contacted 301 HR departments and talked to 1,500 employees who were providing unpaid care, or planned to, and found that 32% had voluntarily stepped away from a job to look after an older family member with daily needs, and a quarter did so to look after an ill or disabled spouse, partner or family member.
Those over 50 and providing care to a family member lose roughly $300,000 in earnings and benefits, according to the AARP.
To address these issues, Biden supports a $5,000 tax credit for informal caregivers, like family members and loved ones, as well as credits towards Social Security. It is similar to the 2019 Credit for Caring Act which would give caregivers a tax credit worth 30% of expenses above $2,000. (That bill limits the credit to $3,000.) A health care practitioner would have to verify that you’re actually providing care to meet specific mental and physical needs, and you’d need to keep receipts of your expenses.
Biden’s plan also allows caregivers who stepped away from paid work for at least a year to care for family members to make so-called catch-up contributions to their retirement plans. Right now, only those 50 or older can do so.
The Final Word
While presidents may have a minimal impact on the performance of the stock market, their policy prescriptions, if enacted, could drastically improve the safety and security of your retirement. Biden’s proposed Social Security and Medicare reforms, as well as his desire to extend additional assistance for caregivers, could afford millions of Americans a better, more secure retirement.