Editors' pick: Originally published Jan. 20.
As Friday's inauguration festivities unfold, it's worth noting this recent news item from the nonpartisan, widely respected political publication The Hill:
Donald Trump is ready to take an ax to government spending. Staffers for the Trump transition team have been meeting with career staff at the White House ahead of Friday's presidential inauguration to outline their plans for shrinking the federal bureaucracy, The Hill has learned.... Overall, the blueprint being used by Trump's team would reduce federal spending by $10.5 trillion over 10 years.
Cutting waste, fraud and abuse in the federal government's budget is what Trump supporters voted for. It raises the question, though: How can Trump and the Republican-led Congress slash $10.5 trillion over 10 years? That comes to more than $1 trillion a year.
The answer: Trump's policy proposals closely follow ideas pioneered at the Heritage Foundation, a conservative think tank that calls for decimating just about everything in the federal budget except defense. Among the programs on course to bear the greatest hits under Trump is Social Security.
Those budget cuts would be at odds with Trump's repeated campaign promises to not meddle with Social Security. But it wouldn't be the first disconnect between Trump's campaign rhetoric and his actions.
Here's a look at the four biggest changes to Social Security that are likely to occur in 2017. Whether you're retired or you still have years to go, it's time to smell the coffee and revamp your retirement strategy:
1. Means Testing
Republican leaders have long advocated means testing for Social Security; they're now getting handed their best chance ever to realize their dream. Supporters of means testing assert that Social Security benefits should be given to those who are genuinely in need. As their thinking goes, by reducing benefits for better off Americans, more money would be freed up for worthier beneficiaries with lower incomes.
Opponents of means testing, mostly Democrats, argue that Social Security is an insurance program into which citizens have been dutifully sending "premiums." Those who encounter the incident for which they've "paid" insurance, such as retirement or disability, are entitled to receive full benefits. With conservative Republicans in charge of the White House as well as Congress, some form of means testing probably will get enacted, which would cut benefits for wealthier Americans.
2. Higher Full Retirement Age
Raising the retirement age is a popular idea with the GOP that's likely to be the cornerstone of any Social Security reform package this year. The "early retirement" age of 62 is when you can begin collecting Social Security benefits. You're entitled to a higher monthly benefit if you wait until you reach full retirement age (FRA). Under existing law, the FRA is 66, which already is scheduled to incrementally rise to 67. Proposals for raising the FRA greatly vary, from 69 to as high as 76. Experts estimate that benefits drop about 7% across the board for each year that the FRA is increased.
3. Higher Social Security Taxes
Americans earning more than $118,500 a year will pay higher taxes for Social Security in 2017. In 2016, wage earners paid Social Security tax on the first $118,500 earned. In 2017, the wage base increases to $127,200. If you earn at least $127,200, your taxes go up by $539.
4. Reduced Overall Benefits
The following general proposals have been floated in the past in Congress, and they'll probably get taken up and passed in some form or another this year. You'll want to find supplemental sources of income, that's for sure:
- Slightly raise benefits for low-income workers with lifetime average salaries of up to $22,105 in inflation-indexed pay. Slash benefits for everyone else from 17% to as much as 43%.
- Terminate cost-of-living adjustments for retirees earning an adjusted gross income of more than $85,000, or $170,000 for couples. Reduce benefits for others by using the "chained" consumer price index to calculate other cost-of-living benefits.
Will Trump make good on his promise to leave Social Security alone? During the presidential campaign, he also asserted that cutting Social Security is morally right. Whatever happens to this 82-year-old social program, you should face the fact that you can't count on Social Security for a comfortable retirement.
America is in deep trouble. And the crisis looming on the horizon has the potential to make 2008-2009 look like child's play. The window to protect yourself is rapidly closing. You'll need to hedge your portfolio. And as this article about Social Security makes clear, you'll also need to find new sources of income.Click here and I'll show you how to simultaneously protect your wealth and make profits.
John Persinos is an editor and investment analyst at Investing Daily. At the time of publication, he owned none of the stocks mentioned in this article.