Biden’s plans will help those ‘fearful of outliving their retirement savings’
President-elect Joe Biden wants to help Americans save for their golden years by expanding access to retirement plans, making health care more affordable for seniors, and strengthening social security.
"These will comfort those who may not have saved enough or were afraid of surviving their retirement plans," said F. Michael Zovistoski, managing director of UHY Advisors, a financial company. "If this plan stops the decline in retirement savings, it will have a direct effect on increasing the inheritance of the next generation."
Read more: Social Security, Medicare, and Retirement: How They Work
Still, Biden's plans have to pass Congress next year, which could be difficult depending on which party controls the chamber after two runoff elections in Georgia in January.
Here are Biden's suggestions.
El Presidente Electo Joe Biden habla el jueves 19 de noviembre de 2020 en el teatro The Queen, en Wilmington, Delaware. (AP Photo / Andrew Harnik)
Extend 401 (k) access
Biden wants low and middle income workers to enjoy the tax benefits of 401 (k) and IRA contributions. In his plan, he found workers receive more than $ 200 billion in tax benefits annually from retirement savings, but two-thirds of that goes to the top 20% of households. His plan doesn't detail how he would offset these benefits.
"This can be done with a flat tax credit for those saving for retirement, versus having the pre-tax retirement savings come from paychecks," Zovistoski said. "But those in higher tax brackets may see a reduction in the tax benefit on saving for retirement if the lump sum is too low."
Read More: 401,000 Fees: Everything You Need To Know
Biden also wants to give small businesses a tax break when they offer their employees a retirement plan. This could help offset the costs associated with creating a plan. Otherwise, employees without a pension or 401 (k) from their employer will have access to an “automatic 401 (k)” that employees can use to save. Details of how this would work were not included.
"401 (k) plans are trustworthy plans of the employer," said Zovistokswi. "It is unclear who the trustee would be under this 401K automatic plan proposal."
Biden also wants to give small businesses a tax break when they offer their employees a retirement plan. This could help offset the costs associated with creating a plan. (Source: Getty Creative)
There are additional benefits for caregivers as part of Biden's plan. For example, penalties would be removed for those who want to save for retirement. Those who care for their loved ones could also get tax breaks on retirement assets.
Biden also hopes to give caregivers the ability to make catch-up contributions to retirement accounts even if they don't earn income in a traditional full-time job.
Changing Medicare in two important ways
At a time when two-thirds of Americans are reporting spikes in prescription drug prices, Biden wants to contain high drug prices and make the state health program available to more elderly Americans.
His five-step plan for controlling prices includes the following changes:
Allow Medicare to negotiate lower drug prices with drug companies
Enable an independent review panel to assess the value of specialized biotech drugs,
Limiting the price increase for all branded, biotech and generic drugs at abusive prices to inflation,
Allow Americans to buy prescription drugs from other countries
Improving the availability of safe generics.
According to Avalere Health, a consulting firm, Biden's plan would also lower the Medicare age to 60, which would allow up to 23 million people to participate in Medicare.
Strengthening social security
Initially, Biden plans to increase the minimum social security benefits to 125% of federal poverty. This equates to $ 15,950 in 2020 and will benefit 12.8% of adults over 65 who fall below this threshold.
Those who wish to receive payments must still have 30 years of covered employment to qualify for the full minimum. Anyone who has worked for 10 years can receive a pro rata share.
Initially, Biden plans to increase the minimum social security benefits to 125% of federal poverty. (Source: Getty Creative)
Biden would also replace the inflation measure that establishes cost of living adjustments for social security benefits. Rather than using the CPI-W, an index that tracks households where at least half of their household income comes from office or paid jobs, adjustments to the cost of living would be calculated from the CPI-E, which is based on the expenditure of adults aged 62 and over and causes more healthcare costs.
Among other things, Biden would also enable carers caring for children under the age of 12 or family members with disabilities to receive social security loans with an income equivalent to the national average monthly wage. This would happen every time a caregiver clocked in 80 hours or more.
Read More: 4 Social Security Tips To Plan Your Retirement
Widows would also get an extra boost in social security. They would receive three quarters of the total benefit the household receives before their spouse dies. This applies as long as this amount is not higher than the benefit that an average-income couple receives.
Those who have received retirement benefits for at least 20 years can also expect a higher monthly check with Congress on board, under Biden's plan.
"Those who have not retired early and have been retired for 20 years are likely to be in the third phase of retirement," Zovistoksi said. "At this point in time, her greatest costs are usually prescription drugs and other medical costs."
Biden also pledged to remove penalties for teachers who have drawn retirement benefits from various sources and allow them to get social security benefits sooner.
Biden also pledged to remove penalties for teachers who have drawn retirement benefits from various sources and allow them to get social security benefits sooner. (Source: Getty Creative)
Almost a third of retirement plans have reduced the proportion of salary that a pension replaces, and half have increased the age at which teachers can start earning pensions. This comes from an earlier study by the Urban Institute this year.
"I have siblings who are teachers in Chicago and they are concerned that they will continue to see pension cuts," said Patrick Rush, author of Gain Big and Give Back: Financial Planning On Purpose.
Pay social security
The former vice president also wants to impose a 6.2% social security tax on income over $ 400,000. That, along with other components of Biden's plan, if it goes into effect from 2021, is expected to keep 1.4 million Americans out of poverty.
However, experts said the chances of Congress passing this tax are unlikely. It was even suggested that a middle ground would tax those who earn between $ 140,000 and $ 200,000 a year.
"You could probably tax a lot more people in this area and more partisan agreements," said Rush. "You could get a lot more people behind the idea of a progressive tax that distributes wealth."
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Dhara is a reporter for Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.
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