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Biden’s plan to boost Social Security and Medicare already looks wobbly

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President-elect Joe Biden won’t take office for another 10 weeks, but it looks like one of his biggest ideas to help retirees is already in trouble.

Biden and his fellow Democrats were sure that if he won the White House, that Democrats would also flip the Senate. They also assumed that the Democrats would gain seats in the House of Representatives, adding to the majority they’ve held since January 2019.

But while the first part worked out—Biden won—his coattails weren’t very long. Not only did Democrats lose House seats, it looks like they’ll be in the Senate minority again. This could change, but it’s a tall order: Democrats must win not one, but two, Senate runoffs in Georgia in January. If they do, then the Senate would be 50-50, with Vice President Kamala Harris breaking any ties. All Republicans have to do is win one, and Mitch McConnell will remain Majority Leader.

The problem for Biden, of course, is that he was counting on a stronger hand in Congress. He wants to boost Social Security benefits, particularly for low-income households, by raising taxes on corporations and individuals earning $400,000 a year. But it’s hardly likely that McConnell and his fellow Republicans will go along with a tax hike of any kind.

Read: I have a seven-figure nest egg — am I saving too much for retirement?

That’s too bad, says economist and retiree advocate Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School for Social Research. “Perhaps Republican Senators will feel the heat to eliminate elder poverty and enough will join with Democrats to expand Social Security benefits,” she says.

It’s also important to remember that Biden’s proposal to tax more but also spend more does nothing to solve Social Security’s underlying problem: That the Trust Fund is on track to be exhausted by 2035, at which point retirees could be looking at cuts of about 25%.

“He hasn’t addressed the cliff this thing (Social Security) is driving toward,” says Chad Parks, founder & CEO of Ubiquity Retirement & Savings. “It’s a hot potato and no one has had the backbone to seriously address it,” he adds.

But Biden’s election does mean one positive for Social Security (and Medicare): Talk of eliminating the payroll tax—which is the principal source of funding for these gargantuan federal programs—will go away. President Trump spoke often of wanting to eliminate this tax, and pay for entitlement programs from the general fund. This would have treated Social Security and Medicare like any other federal program—making it vulnerable each year to the whims of lawmakers and the president.

Read: Should I take a $1,913-a-month pension or a $445,000 lump sum?

Such a scheme—which no less an authority than the Social Security Administration’s chief actuary estimated could have exhausted the trust fund early as 2023—was a flat-out “death threat” against seniors, Nancy Altman, president of the advocacy group Social Security Works, told me recently. “Not just against current beneficiaries, but future ones as well.”

So at least that’s off the table.

Meantime, is there anything Biden could do on his own to help Social Security and Medicare? Executive orders, perhaps? The answer is no. While the new president will use EOs for things like rejoining the Paris Climate Accord and World Health Organization, he can’t do anything for entitlements. He can’t raise taxes on corporations or high-earners without both the House and Senate approving, for example. Just think what presidents could do if they had that kind of power.

There may be one thing that Biden and his fellow Democrats can do with Republicans, however, and that is to change the way Social Security benefits are calculated.

Read: How effective will a COVID-19 vaccine be for adults?

Right now, Social Security’s annual cost-of-living adjustment (COLA) is based on a gauge called the “CPI-W”—the Consumer Price Index for Urban Wage Earners and Clerical Workers. This measures prices paid by working adults under the age of 62 (before the minimum Social Security eligibility age). The problem with this: CPI-W places greater weight on things that seniors need less of—like electronics and, again, gasoline—but less weight on things seniors do spend big on, like medical expenses.

Read: This is what your Social Security check will look like next year — and why

For this reason, Social Security benefits have been creeping up at a snail’s pace in recent years. In 2021, for example, beneficiaries will get just 1.3% more, or an average $1,522 a month. But drug prices have gone up a lot faster than that—3.3% through mid-October for 43 key meds, says GoodRx, which tracks such things.

Meantime, Medicare premiums and deductibles are up a lot faster than that: about 7% this year alone.

There may be political consensus to change the way this annual COLA is calculated. Instead of using spending habits of Americans under the age of 62 to determine what kind of an increase seniors should get, legislation has been introduced in Congress to use an “elderly-specific price index” often referred to as the Consumer Price Index for the Elderly (CPI-E). Here’s a good (though somewhat technical) explanation of all this.

Of course, changing the way the Social Security COLA is calculated this way would bring us back full circle to the problem we’ve been talking about: The cash crunch that is coming and isn’t being addressed.

All these Washington politicians are doing what they always do, Ubiquity’s Parks charges: “They continue to just kick the can down the road.”



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My brother owes $10K to our late father’s estate. There’s no loan agreement and I’m executor. How should I approach repayment?

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Dear Quentin,

My father passed and I am the executor of his will.

We sold the house and Dad’s assets with my brother’s help. Probate is done. We are ready to distribute the remainder of my father’s estate, but my brother owes the estate $10,000.

He feels that if he had paid this money back before Dad passed, he would still get half back, and therefore owes $5,000. (Dad also told me that he owed the money before he passed.)

My father’s will says his estate should be split 50/50. I feel my brother owes $10,000 to the estate. I do not want to rock the boat, and will do the right thing in order to keep peace.

What is the proper way to split $200,000 in cash when he owes the estate $10,000? For the record, my brother will abide by whatever I decide. Thank you in advance for your help.

Trying to Do the Right & Proper Thing

Dear Right & Proper,

You are right to not look for trouble where there is none.

Given that there is no notarized loan agreement between your brother and your late father and there is money to be distributed, it would seem simpler and faster to have him sign a note now saying he owes the estate $10,000 and deduct the $5,000 from his eventual inheritance. Done and done. He could, after all, say that the loan was only due to be repaid when your father was alive or, indeed, say the loan was a gift. (The subject of countless episodes of “Judge Judy.”)

Your story is a cautionary tale of what could go wrong. “A hug or a handshake is not sufficient to bind someone to loan repayment. Loans and repayment obligations should be spelled out in writing and include repayment terms upon the testator’s death,” according to the Absolute Trust Counsel, a California law firm. “It is the responsibility of the executor to collect the balance due. An estate cannot be settled until all loans are collected and all debts settled or paid.”

“When an estate is insolvent, the collection of outstanding loans becomes especially important. Creditors want to be paid and will pursue all available resources to accomplish that,” the firm adds. “Many times, unpaid loans create dissension among heirs. In some cases, heirs who owe money still expect to receive an equal share of an estate.”

There is a healthy cash sum from which to deduct your brother’s loan: $105,000 for you and $95,000 for him. It could get sticky otherwise.

Thankfully, your brother also wants to do what’s right and proper.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

The Moneyist: ‘Warren Buffett and Harry Potter couldn’t get those two retired early’: Our spendthrift neighbors said our adviser was ‘lousy.’ So how come WE retired early?

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These money and investing tips can help you sail the stock market’s choppy seas

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, give you tips about how to navigate the financial markets after February’s bumpy second half and signs pointing to March blowing in with more unpredictable winds.



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This 57-year-old said ‘screw this’ to San Francisco — and retired to ‘delightful’ Albuquerque, where she slashed her expenses by 70%

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When Roberta Reinstein moved to the Bay Area roughly 30 years ago to go to law school, it felt to her like a different place than it does now.

“It was possible for a student to live there…it was filled with artists,” she says. But Reinstein, 57, watched as real-estate prices skyrocketed (in just the past decade or so, home values have nearly doubled, according to Zillow) and many artists and less wealthy people had to move out. Nowadays, “San Francisco is only for the wealthy — the super wealthy — unless you’re willing to live with five roommates,” she jokes.


Do you have an interesting retirement story? Email helpmeretire@marketwatch.com with your story.

As she was watching San Francisco become a hub for the rich, she had a financial setback of her own: a divorce, in which she and her spouse had to split up their assets. And the divorce necessitated she move out of the family home, so she was spending $4,000 a month on a tiny pad to share with her daughter, Eva, she says.

“When Eva was in high school I started to think, do I really need to be here? There are lots of other places I can go.” And the more she thought about it, the more she realized: “Screw this, I gotta get out of here,” Reinstein says with a laugh. “I was ready for a break from the high cost, crowds and Google-fueled insanity of the Bay Area.”

Plus, she loved to flip houses (she’d done a couple in California years ago, before the real-estate prices were so high) and knew that was out of the question for her to do in the Bay Area — so she and her new partner, Peter, considered where else they could live. “We thought for a microsecond that Arizona might be the place, but it was way too hot in the summer.”

Roberta Reinstein and her partner, Peter.


Roberta Reinstein

They settled on Albuquerque for a number of reasons, including the weather, affordability of real estate, access to outdoor activities and the fact that Reinstein’s best friend had recently moved there.

Here’s what life is like in ABQ.

The area: Though it’s perhaps best known for its annual hot-air balloon festival and being the setting for AMC’s hit show “Breaking Bad”, ABQ — which has a population of roughly 550,000 — has a lot more going for it than that. “Albuquerque is a delightful, quirky hidden gem,” says Reinstein.

The Albuquerque Skyline at dusk.


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It’s an artsy spot — there are hundreds of galleries and art studios; monthly art crawls, and a robust performing-arts scene — and a city where outdoor enthusiasts flock to. That’s helped along by the miles of hiking and biking trails in the adjacent Sandia and Manzano Mountains, as well as the roughly 300 days of sunshine. (Though January average lows are in the mid-20s, and July highs hit the low 90s.) And Reinstein tells MarketWatch she loves that it’s a diverse city with its own unique cuisine and celebrations.

Of course, there are downsides: Overall crime is high, though Reinstein says that while there are some not-so-desirable neighborhoods, there are plenty of areas that are safe. She adds that she’s never been the victim of a crime other than someone stealing a hose from one of the homes she was flipping. And there is “a fair amount of poverty,” says Reinstein. Plus, she says, the city can feel like it has a lot of sprawl, and she misses great Asian food.

View of the mountains from Reinstein’s yard


Roberta Reinstein

Here’s what MarketWatch recently wrote about Albuquerque.

The cost: Though Reinstein doesn’t keep a strict budget, she estimates that she probably spends about $3,000 a month to live in Albuquerque — despite having pricey hobbies like owning two horses — it costs her $1,250 a month to board them, which is her most significant expense. She says that most things are cheaper in Albuquerque than they were in San Francisco, including energy and gas, and estimates that she spends roughly 70% less a month than she did in the Bay Area.

Reinstein at the nearby stables.

The biggest way she saves money is by not having a mortgage on her home: She bought the four-bedroom, three-bath home that sits on an acre of land for $240,000, using a combination of savings, her divorce settlement and proceeds from homes she bought and flipped in Arizona and New Mexico, she says. And she adds that you can get a “nice house in a decent neighborhood for under $200,000” with smaller homes to be had for $100,000 or so, and can rent a nice place for $700 to $800 a month. Plus, she drives an older car — “a ratty Toyota Tundra truck” — she explains, so she doesn’t have a car loan.

The sitting room in Reinstein’s home.


Roberta Reinstein

Indeed, the cost of living and property taxes in Albuquerque are slightly below average for the U.S., median homes cost under $200,000, according to Sperling’s Best Places — and you can read about New Mexico’s tax situation here.

The bottom line: Reinstein says she plans to stay. “People are super friendly,” she adds, noting that it’s easy to make friends and get involved in things here. She’s part of a ladies walking group in the neighborhood and has made friends from her barn. “I have like two people I still correspond with [from the Bay Area],” she jokes, adding that “I was so wrapped up in my own world there.” But in ABQ, she says: “I had to go back to managing my schedule because I can’t get stuff done. I have so much to do here.”



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