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Social Security Is Now Even Less Reliable For Millennials Than Ever
Firings and office closures add to doubts about the program
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Happy Sunday, and welcome to Benzinga’s financial advisor newsletter!
Today, we’re looking at the big changes coming to Social Security this year — and how the mixed bag of news puts the reliability of the program in doubt, especially for younger clients.
So, let’s get to it!
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INDUSTRY CHATTER
Sweeping changes are coming to Social Security as well as the agency that administers it in 2025, requiring a rethink of how central or reliable advisors should consider the service for their clients.
Following passage of the Social Security Fairness last year, and former President Biden signing it into law on January 5, the Social Security Government Pension Offset and Windfall Elimination Provision have both been repealed.
Higher Social Security Payments For 3.2 Million Americans
This means that about 3.2 million people who previously had their Social Security benefits lowered because they received a "non-covered pension" will now receive the full benefit. Originally, the Social Security Administration said adjusting everyone's payments and backpaying the full amount starting January could take a year or more. Now, the agency is promising a one-time retroactive by the end of March, and higher benefits starting in April, in all but the most complex cases.
This could mean a substantially higher standard of living in retirement for millions of retired teachers, firefighters, police officers, people who have worked abroad, and Civil Service workers.
New Administration Planning Big Cuts
But while the Social Security Administration speeds up the implementation of this new law, other day-to-day tasks and requests may be about to get a lot slower. Acting commissioner Leland Dudek recently requested managers at the agency to give him a plan for reducing the number of workers at the Social Security Administration by half.
For an agency that with an employee count already at 50-year lows even as the wave of Baby Boomers retiring is cresting, this could have a huge impact on wait times, error rates, and more.
The acting commissioner is also calling for the closing of many agency offices to save money, which will put in-person appointments with a Social Security Administration official that much harder. For older generations unsure of technology, the proposed replacement of Social Security officials with online chatbots is likely to prove a challenge.
End Result Likely To Be A Less Reliable Program
For advisors, this means that current retirees affected by the Social Security Fairness Act will have more wiggle-room in their financial plans soon, allowing for a rethink of their plans. But for younger clients, advisors may have to treat, and educate their clients to treat, Social Security as less reliable than previously thought.
Add the office closures and manpower cuts to the ever-present, oft-discussed funding shortfall, and Social Security is looking less certain for Millennials than ever.
MARKET RECAP
Risk assets tumbled as a wave of bearish sentiment gripped markets, with escalating trade tensions, disappointing earnings and signs of economic fragility weighing on investor confidence.
President Donald Trump confirmed a 25% tariff on imports from Mexico and Canada, effective March 4, while also targeting European Union's goods including automobiles and imposing an additional 10% tariff on Chinese imports.
The sweeping trade measures rattled markets, triggering broad-based sell-offs, with cryptocurrencies bearing the brunt of risk aversion.
Though seeing a small uptick after it plunged below $80,000 in early Friday trading, Bitcoin (BTC/USD) is still entering a bear market after dropping more than 20% from its peak. Sentiment in the digital asset space worsened following a massive security breach at Bybit, where hackers stole $1.5 billion worth of Ethereum (ETH/USD) in one of the largest crypto heists in history.
The high-flying artificial intelligence sector took a hit as investors reassessed its lofty valuations. NVIDIA Corp. (NVDA) suffered steep losses after delivering earnings that, while stronger-than-expected, failed to astonish investors accustomed to impressive beats. The stock's sharp retreat dragged down peers Advanced Micro Devices Inc., Broadcom Inc., Qualcomm Inc. and Intel Corp., all of which saw declines.
Fresh cracks in economic data emerged, adding to investor anxiety. While the fourth-quarter gross domestic product remained unchanged at an annualized 2.3% growth rate, inflation metrics for the same quarter were revised higher.
In January, personal spending contracted by 0.2% on the month, marking the first negative reading since March 2023. The Personal Consumption Expenditure price index — Fed's favorite inflation gauge — came in at 2.5% as expected, remaining above the 2% target.
Housing data also disappointed, with pending home sales plunging 4.6% in January to their lowest level on record. Elevated mortgage rates continued to strain affordability, further cooling demand in the housing market.
The labor market showed signs of softening, as weekly jobless claims jumped by 22,000 to 242,000, marking the highest level in over two months.
GM Boosts Dividends
General Motors Co. (GM) rewarded shareholders with a dividend hike and a fresh buyback plan. The automaker raised its quarterly dividend by three cents to 15 cents per share, effective with its next payout in April. GM also authorized a new $6 billion share repurchase program, including a $2 billion accelerated buyback initiative.
THE WEEK AHEAD
Economic Data
Monday: US manufacturing prices
Tuesday: US economic optimism numbers
Wednesday: US nonfarm employment numbers
Thursday: US initial jobless claims
Friday: US nonfarm payrolls and average hourly earnings for February
Earnings
Click here for the full calendar of economic data and earnings reports.
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