Social Security benefits are one of the most important sources of income for retirees, so every American should pay attention to proposals political candidates put forth that could affect the size of their checks. And with Social Security facing imminent financial trouble, the next presidential election could very well decide the fate of the program.
Democratic presidential nominee Joe Biden has laid out his plan for Social Security benefits as part of his broader economic plan. And there are many potential changes he wants to make to shore up the program and better provide for retirees, including changing the way Social Security raises are calculated.
But there's one particular modification that older retirees should be especially focused on. Biden's economic plans could provide a select group of seniors up to a 5% increase in their benefits. Here's how it would work.
Biden wants to boost benefits to help out the oldest retirees
When laying out his plan for seniors, Biden indicated that one of his goals is to help some of Social Security's oldest beneficiaries.
As the Democratic presidential candidate explained, many Americans begin to exhaust their savings late in life, which can cause financial hardship or even result in seniors living out their later years in poverty. Those at the tail end of retirement also tend to experience outsized health expenditures as medical problems often mount as people age -- which can be an especially big problem if high medical costs come at a time when money has begun running short.
Biden's plan to combat this problem is to offer an extra monthly benefit to those who have been receiving checks for a long time. Specifically, the Biden plan would provide up to a 5% uniform increase to the primary insurance amount of long-term beneficiaries.
As a Penn Wharton study explained in its analysis of the plan, the increase would be phased in at a rate of 1% per year from ages 78 to 82, which is between 16 and 20 years after each retiree first becomes eligible for Social Security at the age of 62.
Biden said he believes this step is necessary to "protect retirees from the pain of dwindling retirement savings." And, with close to half of all Americans worried about outliving their investment accounts, a Social Security benefit bump up that happens late in life could go a long way toward alleviating one of the most common and pressing concerns people have about their later years.
Seniors shouldn't count on a raise just yet
While a 5% increase in benefits would undoubtedly help seniors, it's far from a certainty that this will happen. The outcome of the election is unclear, for one thing -- and even if Biden does become the president, it's not clear if there would be majority support in Congress for this major change to Social Security. And because Social Security's finances are in poor shape, it's just as likely there will be cuts to benefits as there will be increases.
Since no current or future retiree can count on benefits rising, it's imperative that Americans prepare for their own financial security late in retirement. This means setting aggressive retirement savings goals for those who are still working and have time to build a hefty nest egg. And for current retirees, choosing a safe withdrawal rate and maintaining an appropriate asset allocation to minimize risk while still earning reasonable returns will be essential.
By taking charge of your own retirement security, you can avoid the dire consequences that can come from running out of savings late in life when health expenses may rise and returning to work will likely be an impossibility. This can be a time of great financial stress, but you can make sure that's not your fate -- even if Social Security benefits aren't raised to provide extra help.