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Social Security
Teachers, educators, public employees - Do you believe in miracles?
After years of our meetings with you discussing how unfair it was that you were denied your full entitled Social Security benefits or spousal benefits because you were receiving STRS, PERS, SERS FERS or CSRS, a new law was passed to provide “fairness” of benefits for everyone.
After passing both the House and Senate with bipartisan support, President Biden signed the Social Security Fairness Act into law. This legislation repeals the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
What does this mean and who is impacted?
The Windfall Elimination Provision was a formula used to reduce Social Security benefits for someone that paid into both Social Security and a “non-covered pension”. Moving forward, you will receive both your pension and full Social Security benefits as long as you paid into Social Security long enough to qualify for benefits - not a full 30 years.
Spouses are entitled to half of their partners Social Security benefit as a spousal benefit if their benefit is less than half or they don’t have enough credits to quality for their own benefit. Spouses are also entitled to their partners full Social Security benefit in lieu of their own after their partner passes away. The Government Pension Offset reduced spousal or widows benefits for individuals covered by a government pension. The new bill eliminates this provision, so spouses and surviving spouses will now be entitled to full Social Security benefits even if they have a government pension, like STRS or PERS.
There has yet to be clarity as to when benefits will be adjusted, but the law was passed retroactive to January 2024. If you are currently drawing Social Security benefits and have been impacted by the WEP or GPO, expect a check for backpay for what you missed out on in 2024 and an upward adjustment to monthly benefits sometime in 2025. If you haven’t started drawing Social Security benefits yet, but would have been subject to WEP or GPO, your future monthly benefits will be adjusted up automatically when you file. The timing of back payments and new monthly benefits is unknown as it will probably take months for the Social Security Administration to figure all of this out.
These updates are set to take place automatically, so there is nothing you need to do or file.
2024 recap
The post-election market bounce was short-lived as risk assets sold off in December skipping the anticipated “Santa Clause rally” investors were hoping to see. While both stocks and bonds sold off in December, 2024 still finished the year positive for most asset classes after a strong 2023. The “Magnificent 7 stocks” that we have mentioned in the past did account for over half of the return of the S&P 500 for 2024. Nvidia, alone, contributed more than 20%. Markets did start to broaden out after the election as value and small-cap stocks bounced, but then sold off more than the Magnificent 7 towards the back half of December.
2025 outlook
2025 could see major changes as a new administration takes over Washington DC with Republicans controlling all three branches. We would expect to see the tax cuts from Trump’s first presidency extended with talks of new tax cuts also on the agenda. Less regulation, especially in the expanding Artificial Intelligence space, could continue to drive investment and equity markets higher.
As for some potential risks, the government ran almost a two trillion-dollar deficit last fiscal year during a period of low unemployment and strong growth. Many are calling for fiscal restraint and may not be open to additional tax cuts if they are going to push the deficit even higher. The new Department of Government Efficiency is looking to make the government more efficient and find ways to cut spending and reduce waste, however government spending was the driver of much of the growth the past few years. Any significant cuts to spending could impact the economy and risk assets.
Longer term interest rates continue to rise as well, even as the federal reserve has made multiple short-term rate cuts. In the short term this hasn’t been a problem, but if rates stay higher for longer, eventually these higher interest payments could impact the overall economy.
The consensus Wall Street prediction for 2025 is a very good year for risk assets. These same analysts were also very cautious and many were even negative for 2023 and 2024, which both turned out to be good years. Equity valuations are also much higher than they were two years ago, so either companies need to beat earnings forecasts or stocks need to get even more expensive to meet many of their targets. Remember that the consensus is often times wrong, so don’t panic if things do get a little choppy in 2025.
We can’t predict where 2025 will take us, but we look forward to providing you will actionable ideas and being a valuable resource to help you stay invested with confidence in good times and in bad.
Wishing you a happy and healthy new year!
This material is meant for general illustration and/or informational purposes only. Views expressed in this newsletter may not reflect the views of Osaic Wealth, Inc. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no financial advisor can accurately predict all of the changes that may occur in the market. This material should not be relied upon as investment advice. Investors should note that there are risks inherent in all investments, such as fluctuations in investment principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. This article contains forward looking statements and projections. Past performance is no guarantee of future results. Neither Osaic Wealth, Inc. nor its representatives provide tax or legal advice. If you don’t wish to receive marketing emails from this sender, please reply to this email with the word REMOVE in the subject line.