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What is the Significance of Early Curtailment of Social Security Benefits for an Average American?

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An announcement last week about Social Security payouts possibly being reduced sooner than planned sounded an alarm for Americans whose retirement plans had already been thrown off by Covid-19.

However, financial experts say there is no need to get alarmed.

And, last week, U.S. Treasury Secretary Janet Yellen said that one of the dangers of the continuing government impasse over the debt ceiling, which could result in a government shutdown, is that “nearly 50 million seniors could cease receiving Social Security benefits for a time.”

According to a study by Social Security and Medicare trustees, if Congress does not solve the program’s long-term budget problem, payouts would have to be lowered by 2034 – a year sooner than originally predicted. If nothing is done about this by Congress, the consolidated Social Security trust funds will be able to only arrange 78% of the promised payments to the retired and handicapped recipients. According to some news sources, the figure is closer to 75%.

Credit – india-briefing.com

There is no mystery as to why the money is vanishing faster than anticipated. Look no farther than last year’s economic slowdown caused by the pandemic, which contributed to a significant reduction in employment, resulting in lower payroll tax income.

However, only because payments may have to be lowered sooner rather than later doesn’t really imply that Social Security coffers are drying out, as some worry. According to Monotelo Advisors, a Chicago-based financial and tax planning business, this is unlikely.

According to Monotelo’s website, it will be possible for the Social Security Administration to make payments of about three-fourths of the promised benefits, even if the present wage taxes that are being collected are the only total funds that become available to the Social Security till the middle of the next decade.

“While a 25% reduction in benefits could significantly hurt the retirement plans of those who are relying on their Social Security benefits, it is far less damaging than the program being shut down entirely,” Monotelo said.

In an email to GOBankingRates, a similar opinion was offered by Scott Thoma, retirement strategist at Edward Jones, arguing that one cannot assume that Social Security will get bankrupt just based on the assumption that the financial reserves of Social Security could get drained a year earlier than expected.

“There are changes that can be made to put the program on solid footing,” Thoma said. “In order for the program to remain fully funded through the 75-year projection period (they run it for 75 years — through 2095), payroll taxes would need to rise about 3.36%, or just under 1.7% for both the employer and employee, to fully fund the program. If no changes are made, benefits would need to be cut by 24% starting in 2034 (they would be able to pay 76 cents for every dollar of benefits).”

That is if nothing is done by the government to improve Social Security. Other modifications that might be done include raising the full retirement age, revising the lowering formulae, and eliminating the taxable income cap.

“The key thing to remember here is that Social Security is not necessarily going bankrupt,” Thoma said.

The potential for reduced benefits might tempt some retirees to apply for benefits early to get as much as they can before the funds run out. But that’s not necessarily the best strategy.

“If you start taking your benefits as soon as allowed, they will be reduced to 70% of your full retirement age benefit,” Monotelo noted. “Comparing this to the 75% that could be received even after the fund runs out, you would still be hurting your retirement by applying early.”

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The US Job Market Does Not Match Democrats’ Worries Of Omicron

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The Biden administration entered the first week of February in what has become its default mode of operation: expecting bad news.

Loss Of Over 300,000 Private Jobs In January

The White House cautioned that the figures from the Bureau of Labor Statistics on January’s job numbers would be shocking. Reporters were taught to put an unsatisfactory report in context by mentioning the omicron wave’s transient effects, which the company believed had slowed hiring. President Joe Biden’s team, on the other hand, had reason to believe that no amount of nuance would be enough to mask what they expected to be the second straight poor employment report. On Wednesday, ADP, a payroll processing company, predicted a loss of over 300,000 private jobs in January, far fewer than the Dow Jones estimate of weak but positive employment growth.

However, when the numbers came in on Friday, these concerns were unfounded. According to the BLS, private nonfarm payrolls did not only fail to decrease in January; they actually increased by 467,000 jobs. Almost every industry expected to be hit worst by the pandemic grew, from bars and restaurants to professional services, transportation, and even retail sales, which typically suffer after the holiday shopping frenzy. According to the BLS, the number of workers increased by 1.4 million. More good news: December’s job growth was raised up from 199,000 to a staggering 510,000 jobs, according to the report.

To summarise, Covid was not the economic drag the White House projected from its discovery in the final week of November to its current fall. This is due in part to the fact that the information ecology in which mainstream news consumers marinade has maintained a consistent drumbeat of negativity for the past eight weeks.

By late December, there was strong consensus that the omicron infection outbreak, although milder, was contagious enough to impair social and economic activities in a way that was indistinguishable from the deadliest days of 2020. According to a CNN report from America’s dark blue metropolitan enclaves on December 21, city dwellers were withdrawing to the shelter of their residences once again, and businesses were closing as staff phoned in sick. No one wanted a return to lockdowns, but a “voluntary suspension of activity—a soft lockdown, essentially,” as The Atlantic’s Sarah Zhang put it, would sweep the country whether we liked it or not.

 

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US Businesses Shed 301,000 Employees In January Amidst The Record Breaking Omicron Wave

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As a consequence of a record omicron wave that kept individuals out of work and disrupted recruiting plans, private U.S. businesses cut employment by 301,000 employees in January, the worst decline since the epidemic began, reports marketwatch.com.

The Wall Street Journal interviewed economists who predicted a 200,000 rise.

The fall was the first in 13 months and the greatest since April 2020, when the United States lost about 20 million jobs amid a pandemic-era economic lockdown.

ADP is often used as a forecasting tool for the US Labor Department’s wider employment survey, which is released a few days later. During the pandemic, however, the two reports were frequently at odds, and ADP was less accurate as a predictor.

Nonetheless, due to the omicron issues, economists estimate the government’s official figure to be similarly low on Friday. Some even expect a complete fall.

Businesses are scrambling to fill a record number of available positions and meet the high demand for their products and services. According to a federal poll, there are about 11 million job openings in the United States.

The issue is that there aren’t enough people to fill all of the open positions. Several million employees who left the workforce earlier in the pandemic haven’t yet returned, and many are unlikely to do so in the future. Coronavirus epidemics have also made it more difficult for some people to return to work, such as women and caregivers.

Good News!

The good news is that the Omicron is quickly fading, and industry leaders predict that recruiting and employment will soon restore.

Almost Every Organization Suffered A Major Setback In January

In January, almost every major sector of the economy suffered a setback.

Small businesses that primarily provide services, such as hotels, cafeterias, restaurants, entertainment facilities, public transportation, and so on, saw the greatest drop in employment. 144,000 jobs were lost by small businesses.

Due to business constraints or fear of contracting the coronavirus, customers stayed away.

During the omicron surge, major organizations lost 98,000 jobs and midsized enterprises lost 59,000. According to second government data, roughly 9 million individuals missed work in January, a recent record.

Economists polled by The Wall Street Journal predicted that the US Labor Department’s tally would show a gain of 150,000 new jobs in January before the ADP data. These data include the number of people employed by the government.

“There is no telling how close ADP’s initial January estimate will prove to be to the figures that will be reported by the Labor Department on Friday,” said chief economist Joshua Shapiro of MFR Inc.

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Social Security Beneficiaries Will See A 5.9% Benefit Hike In 2022

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Golden State stimulus (2)

Due to its annual cost-of-living adjustment, existing Social Security recipients will see their gross benefits increase by 5.9% in 2022.

More than 50 million people in the U.S. are, as of late, relying on Social Security for a part of their retirement income. When you also consider that about 180 million have paid into the system, it’s evident that the program is serving some foundation to the majority of the people’s retirement plans.  

What Americans Should Be Anticipating From Social Security in 2022

Albeit such a fact, its future is pretty much at risk. An example of it is Treasury Secretary Janet Yellen indicating its payments were at risk if the debt ceiling didn’t get an increase early this year. To that end, folks should expect these from the program next year.  

COLA’s 5.9   

It’s already a known fact that the highest cost of living adjustment (5.9 percent) in 40 years is scheduled to go live next year. Despite being deemed such, it may well seem that it won’t be sufficient to keep up the overall inflation that we endured this year. Additionally, according to Motley Fool, the Bureau of Labor Statistics stated that the overall Consumer Price Index was upped by 6.8 percent in the 12 months through November this year.   

Social Security funds going gone  

Another thing to point out is that, albeit the increased tax burden in funding Social Security, simply under the calendar advancing a year, the date that the program’s trust funds are expected to run dry will be earlier than anticipated (projected to be emptied by 2034).  

High income=Higher taxes  

Next year, the wage base on which taxes from the program are levied will also be upped to $147,000 from $142,800. This is a $4,200 increase in income to Social Security’s 12.4 percent tax rate in which half of it will be paid by the employer, and employees will pay the other half.  

Likely to do nothing  

Social Security has been known to be the “third rail of American politics.” It borrows the moniker from electrified train tracks where touching the electricity-carrying third rail may likely result in a person’s demise.  

Sadly, such infamy simply translates that neither sides have the eagerness to push forward reforms to Social Security until the trust funds are that close to drying out that they have no other choice. For the uninitiated, the last massive reform to the program happened in 1983 – before the trust funds were expected to empty the last time. 

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