In Perspectives

For many Americans, Social Security retirement benefits are the backbone of their retirement income.  Unfortunately, the March 2023 Trustee’s Report for Social Security now projects the exhaustion of the Social Security Trust Fund in 2033.  Once the Trust Fund is exhausted, benefit payments cannot exceed the annual income received through payroll taxes, which may result in benefit reductions of 20% or more.  The only way this shortfall can be fixed is by cutting benefits or by generating additional income through taxation and there is a myriad of different ways being proposed to do just that.  Although I don’t know what the ultimate solution will be, I do feel that Social Security is too politically sensitive for Congress to let it fail.  The only question is, who will bear the burden of restoring its solvency?

Two proposals were recently introduced into Congress which seem to provide insight into the current mindset for fixing the problem, and predictably they place the burden on those with high incomes and the wealthy.  Both proposals include a requirement to assess Social Security taxes on all income over $400,000.  This threshold is not indexed, so once inflation increases the current $160,200 earnings limit to $400,000, all income would be taxed.  In addition, each proposal includes some kind of tax on the Net Investment Income as generally defined by the Affordable Care Act.  However, lower wage earners, current beneficiaries, and those without significant assets would be spared from the most onerous impacts of the proposals.  It is interesting that the proposal getting the most attention adds temporary benefits for less wealthy beneficiaries that would significantly impair the ability to fix the problem.

More progressive ideas have also surfaced that would push the burden of raising additional income onto more well-to-do retirees through changes in the initial benefit calculation and how it is adjusted for inflation.  Some of these proposals would reduce the benefit paid on the upper tiers of a retiree’s average monthly income while also reducing the cost-of-living adjustment for high-income earners.

Of course, there were many other steps contemplated and quantified in the trustee’s report that could be considered to address program solvency.  Each of these options has a relatively small individual impact, but collectively, they could prove to have a meaningful impact.  They all contemplate some form of benefit or taxation change, but not all of them would improve the situation.  As noted above, some would improve benefits or reduce taxation for certain segments of the population.

Although we don’t know how Social Security’s looming funding problems will be resolved, the program is too important to the voting public to fail.  Many different tools are available, and it seems that a combination of them will be required.  However, at the most basic level, any fix will require raising taxes, reducing benefits, or likely both.  Most of the current proposals impact future beneficiaries far more than current beneficiaries.  Consistent with the current political mood, early proposals protect lower earners and penalize those with higher wages and investment income.  If these strategies come to fruition, it will be necessary for investors to carefully consider their income sources and investment strategies in the future.  Legacy Trust will be watching the Social Security developments carefully, and we will be prepared to help you determine the impact of any change on you.  Please feel free to contact us with questions about this or would like our wealth management team to help you develop a comprehensive retirement strategy.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.


Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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