Biggest Retirement News of 2021

Slideshow November 24, 2021 at 11:57 AM Share & Print

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Retirement issues have been front, right and center this year, as supply chain problems tied to the pandemic resulted in rising prices worldwide for seniors and other individuals.

This led to a boost in the 2022 cost-of-living adjustment for Social Security recipients, which made it biggest jump in 30 years.

The Social Security Trust Fund report also took on special significance this year; not only did it come out much later than usual, but its forecast had special implications for Social Security benefits and highlighted the need for Congress to act.

Other topics in focus by Congress this year include a look at mega-back door individual retirement accounts, put into the spotlight by media reports about billionaire investor Peter Thiel’s use of his own IRA to amass $5 billion.

The gallery above looks at the details of some of the most influential developments involving advisors and the retirement industry this year.

Ginger Szala

@gingerszalaink

NOT FOR REPRINT

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Biggest Retirement News of 2021

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On Oct. 13, the annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 was announced by the Social Security Administration: 5.9%. This will be the largest increase since 1982.

“This would be the highest COLA that most beneficiaries living today have ever seen,” said Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League, noting that inflation patterns caused by the COVID-19 pandemic are “unprecedented” in her experience.

The COLA was based on third-quarter inflation data, and spotlighted rising inflation. The Consumer Price Index, announced that morning by the Labor Department was up 5.4% in September versus the year prior and up 0.4% from August. (The CPI includes food and energy.)

Key components of the increase included the energy index, which rose 1.3 % from the previous month, mainly due to the gasoline index, which rose 1.2%, and fuel oil, which rose 3.9%. The food index rose 0.9%, and new vehicle prices increased 1.3% from the previous month.

(Image: Adobe Stock

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The September release of the Social Security Trustees report — long in coming as it is typically released in April — had potential bad news: The projected date that the Old-Age and Survivors Insurance Trust Fund, which pays benefits to retirees, was to be depleted by 2033, one year earlier than reported in 2020.

The Disability Insurance Trust Fund will pay benefits until 2057, eight years earlier than last year’s report. Once the funds are depleted, the OASI should be able to pay 76% of scheduled benefits, while the DI will pay 91% of scheduled benefits. But this is better than some retirement experts feared at the height of the pandemic.

“The news from the new report was definitely less dire than many thought could be possible,” Wade Pfau, professor of retirement income at The American College of Financial Services, told Investment Advisor. ”Last year’s report projected that the combined OASDI funds could be depleted by 2035. During the pandemic, there was analysis circulated that this date could be moved to as early as 2029. In the end, it’s only one year sooner at 2034.”

The depletion date isn’t written in stone. But Congress will have to take action.

(Image: Adobe Stock

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In 1999, budding investor Peter Thiel used $1,700 in his new Roth IRA to buy startup shares of the firm he co-founded, which would later become PayPal. That account now is worth more than $5 billion — with no tax bill awaiting Thiel upon withdrawal of the assets, as long as he waits until six months before his 60th birthday.

In June, ProPublica, an investigative news outlet, reported this story in an article, “Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Tax-Free Piggy Bank.” The article sparked debate over Thiel’s use of a Roth IRA as a massive tax shelter — and how other investors and the government might respond.

Indeed, the expose ignited an array of actions from Congress, which has included an ongoing threat to the usage of the so-called mega backdoor Roth IRAs in various legislation.

As of the 2019 tax year, nearly 25,000 taxpayers had aggregate IRA balances of $5 million to $10 million. In total, more than 28,600 taxpayers had more than $5 million, including 497 taxpayers with aggregate IRA balances of $25 million or more, the JCT found. The average aggregate account balance for these 497 taxpayers was more than $150 million.

The $2 trillion Biden economic plan passed by the House of Representatives on Nov. 19 includes a $10 million cap on individual retirement accounts; it remains to be seen if the Senate will agree to such a policy.

(Photographer: Kiyoshi Ota/Bloomberg)

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