Carson Johnson, CFP®, CRPC™, NSSA™, Author at Peterson Wealth

What Does the Social Security Fairness Act Mean for Retirees? A Peterson Wealth Perspective

Posted on January 16, 2025February 24, 2025 by Carson Johnson, CFP®, CRPC™, NSSA™

Important news for retirees, we have a Social Security Fairness Act update! Social Security benefits are about to change in a way that will make a significant difference for millions of people.

The Social Security Fairness Act was signed into law on January 5, 2025, this eliminates two controversial provisions that have reduced benefits for millions of public servants for over 40 years. Let’s explore how these changes may impact those affected by these provisions.

We’ll cover the following topics:

Does the SS Fairness Act affect you?
People affected by the SS Fairness Act
What is the SS Fairness Act?
SS Fairness Act repeals
How will the repeals of WEP and GPO impact you?
The sustainability of the Social Security program

Does the Social Security Fairness Act Affect You?

One of the most common questions people are asking is, “Will this change affect me?”

If you’ve always worked in jobs where Social Security taxes were automatically deducted from your paycheck, this new law likely won’t affect you.

However, if you’ve worked in a job that didn’t withhold Social Security taxes and you are eligible for Social Security benefits, then this law could immediately add to your monthly income.

Social Security Fairness Act: People Affected

If You Earned Your Own Social Security Benefit: If you worked long enough in a job where Social Security taxes were withheld to qualify for your own benefit, the Windfall Elimination Provision (WEP) may have reduced that benefit by up to $600. This new law could eliminate that reduction, increasing your benefit amount.
If You Qualify for Spousal or Survivor Benefits: If you’re eligible for Social Security benefits through your spouse’s work history, you may have been affected by the Government Pension Offset (GPO). This new law could also remove those reductions. Here are some situations where this applies:

Spousal Benefits: If your own Social Security benefit is less than half of your spouse’s benefit at their full retirement age, you can claim a spousal benefit instead.

Divorced Spouse Benefits: If you were married for at least 10 years, are now divorced, and your benefit is less than half of your ex-spouse’s benefit, you can claim a divorced spouse benefit.

Survivor Benefits: If your spouse (or ex-spouse, if married at least 10 years) has passed away, you may qualify for a survivor benefit, which could be up to 100% of what your spouse or ex-spouse was entitled to receive.

What Is the Social Security Fairness Act?

The Social Security Fairness Act is a law designed to eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)—two rules that have reduced or eliminated Social Security benefits for individuals who also receive a pension from jobs that didn’t pay into Social Security.

These provisions were first enacted to ensure fairness by preventing “double-dipping”, where individuals could receive full Social Security benefits alongside pensions from jobs not covered by Social Security. However, in many instances, these provisions have unfairly penalized public servants such as teachers, police officers, firefighters, and certain government employees once they retire.

By repealing WEP and GPO, the Social Security benefits Fairness Act was created to ensure that these workers receive the full Social Security benefits they’ve earned, providing financial security to retirees impacted by these outdated rules.

Social Security Fairness Act Repeals

Let’s answer the question, “what does the Social Security Act do?” by talking about the repeals.

The Windfall Elimination Provision (WEP)

The Windfall Elimination Provision (also known as WEP), reduces Social Security retirement benefits you receive from your own work if you also have a pension from a job where you didn’t pay Social Security taxes.

In today’s work environment, it is common for individuals to work for many employers throughout their career such as various school districts, police forces, and certain government agencies where Social Security taxes were not deducted from their paychecks. If you worked a non-covered job where Social Security taxes were not taken out of your paycheck and have fewer than 30 years of work in covered jobs, the Windfall Elimination Provision affects you. According to the Congressional Budget Office (CBO), this impacts about 1.9 million retirees, often reducing their benefits by up to $600 per month.

The Government Pension Offset (GPO)

The Government Pension Offset (also known as GPO), is very similar to the Windfall Elimination Provision. The biggest difference is that this provision reduces spousal or survivor benefits for individuals who receive a pension from jobs where Social Security taxes were not deducted.

Specifically, GPO reduces these Social Security benefits by two-thirds of the pension amount. For those with large pensions, this provision can be incredibly hurtful and reduce benefits to zero depending on your situation. The Congressional Research Service (CRS) estimates that this impacts about 1.3 million retirees.

Why These Changes Matter

For decades, WEP and GPO have created financial hardships for public servants and their families. Here’s why these changes are so significant:

Public Servants Penalized: Teachers, firefighters, and police officers who worked in both covered and non-covered jobs have faced reduced benefits despite paying into Social Security during their careers.

Widows and Widowers Affected: The Government Pension Offset is extremely punitive as compared to the Windfall Elimination Provision because it can eliminate a spousal or survivor benefit entirely. This has left many surviving spouses with little to no Social Security income, forcing some to return to work even in their later years.

Complex Rules: The WEP and GPO provisions are complicated and often misunderstood, making retirement planning more challenging for affected individuals.

What Happens Next?

With the Social Security benefits Fairness Act now officially signed into law, the Social Security Administration is now tasked with the responsibility to implement these new changes. While the Administration has not yet issued specific guidance, based on previous updates, the implementation process could take several months to over a year. Despite how long it may take for the Administration to implement the new rules, it’s important to keep in mind the following:

The Act will take effect for benefits payable after December 2023.

Be retroactive to January 2024, meaning affected retirees will receive back payments for prior months.

Full Social Security benefits will be restored for individuals affected by WEP and GPO.

The system will be simplified, making it easier for retirees to understand and plan their finances.

How Will The Repeal of WEP and GPO Impact You?

If you’ve been affected by WEP or GPO, here’s how the repeal could benefit you:

Increased Monthly Benefits: A retired public servant who worked part-time in a Social Security-covered job could see an increase in monthly benefits of up to $600.

Restored Survivor or Spousal Benefits: An individual who has lost spousal benefits or a widow(er) who has lost survivor benefits due to GPO could regain access to these funds. This could make a huge difference for those who haven’t been able to receive survivor or spousal benefits!

Lump-Sum Payments: According to the legislation, retroactive payments for benefits backdated to January 2024 are expected. It remains unclear whether this could result in a lump sum for 2025 or through another method. However, if it’s a lump sum, it’s important to factor this into your tax planning for the year and how this might impact other strategies that you may be considering such as charitable giving, Roth conversions, and much more.

The Sustainability of the Social Security Program

While these changes bring significant relief to select individuals, they also come at a cost to the Social Security system. The Congressional Budget Office estimates that the repeal will cost nearly $200 billion over the next decade, potentially moving the program’s insolvency date forward by six months, from 2035 to 2034.

We recognize the concern that many retirees have about the future solvency of the Social Security program. Unfortunately, there is a lot of misinformation that surrounds the sustainability of Social Security.

The boring truth is that Social Security is not going away anytime soon. Minor adjustments to the system now could extend the viability of Social Security for years into the future. Raising the age requirements of future claimants, changing how the cost-of-living adjustment is calculated, or raising the maximum earnings subject to the Social Security tax are all viable measures that will have to be considered by our politicians in order to strengthen the Social Security program.

To date, these common-sense solutions have not been implemented because anytime a politician has suggested a change to Social Security, it has resulted in political backlash. Overall, we believe that decisions about your Social Security benefits based on the notion that the program is going broke are both dangerous and irresponsible.

What Should You Do?

Check Your Social Security Statement: Review your benefits to understand how WEP or GPO currently impacts your retirement income.
Verify your contact information. Make sure that your mailing address and direct deposit details are accurate. You can update this information by logging into your account at www.ssa.gov/myaccount.
Plan for Tax Implications: Additional income from retroactive payments could push you into a higher tax bracket. Consider working with a tax professional to minimize the tax impact and coordinate it with any other tax planning strategies you may be doing such as Roth conversions, charitable giving strategies, and more.
Review Your Retirement Income Plan: Additional income from Social Security could reduce the amount you may need to withdraw from your investments, impacting your overall retirement income strategy.
Contact the SSA: If you have never applied for a spousal or survivor benefit because you have been affected by GPO, we would highly recommend that you contact your local Social Security office to apply for benefits. Once Social Security has implemented these new rules, you should contact your local office to ensure your benefits are recalculated correctly.

*For clients of Peterson Wealth, the impact of these changes will be discussed with you during your upcoming meetings with your financial planner.

Social Security Fairness Act: A Step Toward Fairness

The Social Security Fairness Act is a long-awaited step toward fairness for retirees who have been unfairly penalized by WEP and GPO. By restoring full benefits, this legislation provides crucial financial relief to public servants and their families.

If you have questions about how this change might affect your retirement, please don’t hesitate to reach out.

Medicare Made Simple: Key Insights and 2025 Updates

Posted on November 26, 2024March 13, 2025 by Carson Johnson, CFP®, CRPC™, NSSA™

Have you ever tried putting together a piece of furniture? At first, it seems straightforward. You start strong, pulling out all of the pieces and you begin reading the instructions. You may even be thinking, “This isn’t so bad.” But then something’s off, and the pieces stop aligning, you lose screws or nails, and what you think should have taken 30 minutes ends up taking you an hour or longer! That’s how Medicare can feel—what sounds simple can quickly get complicated. In this blog, I’ll walk you through the Medicare basics and common challenges retirees face, so you can feel confident that you’re building a healthcare plan that’s strong, dependable, and most importantly tailored specifically for your family’s health insurance needs.

Medicare Isn’t as Simple (or Free) as You Think

A common misconception about Medicare is that it will cover all healthcare needs in retirement at little to no cost. While Medicare offers solid coverage, it doesn’t cover everything and is far from free. According to the 2022 Retirement Healthcare Costs Data Report by HealthView Services, Medicare covers only about two-thirds of healthcare costs, leaving retirees responsible for the remaining third. Out-of-pocket expenses can add up quickly, especially for those with chronic conditions or high prescription drug costs.

Many retirees are surprised by the Medicare costs that they are responsible to cover. These costs include premiums, deductibles, copays, and other gaps in coverage. To help cover these gaps, we must first understand the four main parts of Medicare.

Breaking Down the Four Parts of Medicare

Medicare is structured into four main parts, each covering different types of healthcare expenses. Here’s a quick breakdown:

Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing care, hospice, and some home health care. Part A is usually premium-free if you or your spouse worked at least 10 years and paid Medicare taxes.
Part B (Medical Insurance): Covers doctor visits, outpatient care, preventive services, and medical equipment, with a monthly premium that’s income dependent. In 2025, the standard premium is $185 per month, however, Part B premiums are based on the gross income you report on your tax return and can be as high as $628.90 per month per person. This means that higher-income individuals (couples) will pay more for Part B. If you are curious to know what the Medicare Part B premiums will be next year (2025), I’ve included a chart with the updated numbers that were just released.
Part C (Medicare Advantage): Offered by private insurers, Medicare Advantage bundles Parts A and B, often with Part D and extras like dental, vision, and fitness benefits. However, Advantage plans usually require you to stay within a specific network of providers.
Part D (Prescription Drug Coverage): Provides coverage for prescription medications. Each Part D plan has a formulary, or list of covered drugs, which varies by plan.

Medicare Essentials vs. Optional Add-Ons: What Do You Really Need?

Now that you have traditional Medicare (Parts A and B), the next step is to purchase additional coverage to cover the additional services that you need. Here are the three different ways you can get additional coverage:

Medigap (Medicare Supplement) Plans: These plans help cover out-of-pocket costs that Parts A and B don’t cover. These out-of-pocket costs may include deductibles, coinsurance, and more. Medigap plans do not include prescription drug coverage, so you would need a separate Part D plan as well.
Medicare Advantage (Part C) Plans: Medicare Advantage is an alternative to Medigap, combining Parts A and B and often D. I like to think of Medicare Advantage plans as a one-stop shop for Medicare. By combining all of the different parts of Medicare, it makes it an easier option to obtain the additional coverage that you need. Some Advantage plans even include extras such as dental, vision, gym memberships, and more.
Part D (Prescription Drug Coverage): If you decide to go with a Medigap (supplement plan) over an Advantage plan, you may also need to find a separate prescription drug plan. Part D is essential if you take regular medications, as it helps reduce prescription drug costs. Even if you don’t take regular medications, you should still consider enrolling in a Part D plan to avoid unnecessary penalties.

If you are wondering what is NOT covered by Medicare. Here is a summary of some (not all) of the services that traditional Medicare does not cover:

Long-term care
Care delivered outside the U.S.
Dental care
Vision care
Hearing aids
Cosmetic surgery
Acupuncture and other alternative care
Amounts over the Medicare-approved amount
Amounts not covered by deductibles and coinsurance (20%)

The Real Costs of Medicare: What to Expect

While Parts A and B provide a solid foundation, average annual healthcare expenses for retirees with Medicare are still around $4,300, according to the Center for Retirement Research. If you need extensive care, retirees should expect higher costs, especially for non-covered items like dental, vision, hearing care, and long-term care. Planning for these expenses is essential, and options like Medigap or Medicare Advantage can help manage out-of-pocket costs.

Medigap vs. Medicare Advantage: Which Should You Choose?

The decision to choose between a Medigap (supplement) plan and a Medicare Advantage plan is one of the most challenging Medicare decisions a retiree will have to make. There are many factors that come into play depending on your health, finances, and what you plan on doing during your retirement. Here are a few important takeaways that can help you with your decision:

Medigap Plans: Medigap plans often provide excellent coverage, but it does come at a cost. These plans typically will have higher monthly premiums, but they will generally provide more comprehensive coverage. Additionally, if you plan to travel frequently during your retirement, a Medigap policy may be an excellent choice because it will provide you coverage nationwide unlike Medicare Advantage plans which restrict what doctors, clinics, or hospitals you can visit.
Medicare Advantage Plans: Medicare Advantage plans are generally more cost-effective. They typically have lower monthly Medicare and can be even zero dollars per month (keep in mind you still have Medicare Part B premiums). These plans may be beneficial for those who are healthy and prefer lower upfront costs. However, if you decide to go with a Medicare Advantage plan it may be difficult or even impossible for you to go to a Medigap policy later in retirement if your health declines.

Enrolling in Medicare: When and How to Avoid Costly Mistakes

Missing Medicare enrollment deadlines can result in permanent penalties. Here’s what you need to know:

Initial Enrollment Period: The initial enrollment period is a 7-month window around your 65th birthday. The 7-month window begins three months before your 65^th birth month, your birth month, and three months after your birth month. If your birthday falls on the 1^st of the month, then that 7-month window begins one month earlier (i.e. if your 65^th birthday is on December 1^st, then your 65^th birth month is actually November). I would highly suggest that you enroll early to avoid not being covered by a plan and unnecessary penalties.

Special Enrollment Period: This enrollment period is for those who have delayed Medicare until they lose employer health insurance coverage. This window begins after your employer coverage ends and lasts seven months.

Note: This period applies only if you have appropriate employer coverage from a company with at least 20 employees. You should speak with your employer to know if your employer coverage qualifies.

General Enrollment Period: Most people are familiar with the general open enrollment period. This period runs from January 1 to March 31 each year. If you missed the Initial or Special Enrollment periods, then this enrollment period would be your next option. Once you are enrolled, coverage will begin the following month.

Medicare Part B and Part D Penalties

If you miss your enrollment window, your Medicare Part B and D will be significantly penalized! Medicare Part B premiums will increase by 10% for each 12-month period you go without coverage. For Part D, the penalty is 1% of the standard premium for each month you go without creditable drug coverage. These penalties are permanent, so be sure that you enroll early and avoid gaps in coverage.

Understanding the Impact of Your Income on Medicare Premiums

Many retirees may not realize that the income that they report on their tax return will determine what they will pay for Parts B and D of Medicare. Premiums are based on your Modified Adjusted Gross Income (MAGI) reported two years prior. For example, the income you reported in 2023 will determine your Medicare Part B and D premiums in 2025. If you file a joint tax return and have a MAGI over $212,000, you’ll pay the first surcharge. The surcharges continue to increase the higher the income you report on your tax return. Fortunately, if your income has dropped due to your retirement, the passing of your spouse, or other life events, you can request an adjustment to lower your Medicare premium based on what your income will be going forward. You can Google form SSA-44 to learn more.

Tip: Certain events will increase your taxable income, like Roth conversions or selling appreciated investments in a non-retirement investment account. Be mindful as you make these financial decisions that impact your taxable income each year. The results of these decisions will not just impact the taxes you pay annually but will additionally impact the premiums that you will end up paying for your Medicare coverage. By being strategic with your tax strategies and putting a plan in place that considers the impact your taxable income can have on Medicare premiums, you can save yourself thousands of dollars in Medicare Premiums during your lifetime.

Upcoming Changes to Medicare in 2025

The information shared so far hopefully gives you a basic overview of Medicare and can help you create a solid Medicare foundation that you can build upon. Now, let’s talk about some important upcoming changes to Medicare starting next year.

The 2025 Inflation Reduction Act introduces new Medicare changes, especially for prescription drug coverage. Here’s what to expect:

$2,000 Annual Out-of-Pocket Cap: For the first time in Medicare history, retirees with high drug expenses will see an annual cap on prescription costs.
Spread Out-of-Pocket Payments: You’ll be able to spread out-of-pocket prescription drug costs over the year instead of paying a lump sum.
More Transparency for Medicare Advantage: Plans must disclose unused supplemental benefits, like dental and vision.
Higher Costs for Insurers: Insurance companies will cover a larger share of drug costs.

These updates may seem like all good things and provide significant savings, but they may also impact premiums and plan options. Because there is more financial pressure on insurance companies, this will likely lead to increased premiums, reduced benefits, or the exclusion of certain services. Even if you are satisfied with your current Medicare plan, I would highly recommend that you review your plan for this upcoming year to see if there are any noticeable changes that may impact your lifestyle.

Disclosure: Many of the insurance companies and drug plans are still navigating these changes which means the changes to plans may not happen immediately. Each Medicare plan is unique to each individual and the area in which you live so please work with a Medicare specialist who can discuss how these changes may impact you.

Consider Working with a Medicare Agent—and Us!

Medicare can feel overwhelming, but it doesn’t have to be. At Peterson Wealth Advisors, we help clients understand their options—such as Parts A and B, the differences between Medicare Advantage and Medigap, and how to align Medicare with their overall financial strategy. For specific details, like selecting the right plan, identifying in-network doctors, or evaluating prescription coverage, we recommend working with a trusted Medicare specialist in your area. Working with a Medicare specialist in your area will be of great benefit to you because they will be familiar with the plans, networks, doctors that pertain to the area in which you live.

Medicare specialists typically do not charge clients directly for their services. Instead, they are compensated by the insurance companies when you enroll in a plan through them. This means their guidance in selecting a plan is often provided at no additional cost to you. Their primary role is to help match you with a plan that meets your healthcare needs and preferences, including doctors, prescriptions, and network options available in your area. By combining our strategic guidance with a specialist’s detailed expertise, you’ll have the comprehensive support needed to navigate Medicare confidently. If you are in need of a Medicare specialist, feel free to send us an email and we can send you some resources to help find a trusted Medicare specialist in your area.

Conclusion

Medicare may feel complicated at first, just like assembling a piece of furniture. But like any complex project, it becomes manageable with the right guidance. Remember, Medicare is not a “once and done” kind of project. You should continuously review your Medicare plan each year to ensure that it meets your needs in retirement. As you align yourself with expert support, you can avoid costly mistakes and feel confident in your healthcare plan throughout retirement. Do you feel ready to talk about your retirement plan? Schedule a consultation here.

If you would like to learn more about health insurance, we have previously recorded webinars available on our website you can watch. The links to these webinars are below.

What is happening with Silicon Valley Bank?

Posted on March 24, 2023March 13, 2025 by Carson Johnson, CFP®, CRPC™, NSSA™

Recently, there has been growing concern over the stability of our banking system. Particularly following the collapse of several banks, the two most notable being Silicon Valley Bank (SVB) and Signature Bank. So, what is happening with Silicon Valley Bank and other banks? Is this a sign that our banking system is on the brink of collapse? The answer is likely no and I hope this blog gives you clarity on what is happening with a handful of banks across the nation.

In very simple terms, SVB and Signature Bank have experienced massive growth over the past few years. This was caused by a boom in venture capital. These banks invested a disproportionate number of deposits in long-term bonds when interest rates were at generational lows. Longer-duration bonds are particularly sensitive to rising interest rates. As interest rates rose, the price of these bonds plummeted.

Once it was announced that these banks had lost billions on their balance sheets due to their own mismanagement, customers became nervous and withdrew their deposits. A “bank run” is when large numbers of customers concurrently withdraw their deposits over fears about solvency. The recent bank run occurred over the course of a few days. This resulted in several banks being seized by regulators.

The United States’ primary safeguard against “bank runs” is FDIC insurance which stands for Federal Deposit Insurance Corporation. FDIC insurance covers up to $250,000 per depositor, per bank, per account type. Regardless of the factors that led up to the collapse of these banks, we know that roughly 90% of deposits at SVB and Signature Bank exceeded the FDIC insurance coverage limit and were therefore uninsured. You may now have a better understanding why a bank run by larger depositors was justified.

The reality of our banking system

What is happening with Silicon Valley Bank and other bank failures happens more often than you might think. In fact, there have been 565 in the U.S. since 2000 which is an average of almost 25 per year. The collapse of SVB and Signature Bank are unique, notably due to their size. The Silicon Valley Bank and Signature Bank were amongst the largest banks in the country. So, the question is, will the failure of these banks lead to a systemic bank crisis? The answer is likely no.

Many reputable banks go above and beyond the regulatory requirements that are imposed upon them. This is to ensure that they have enough cash on hand for customer withdrawals. This was not the case for SVB and Signature Bank. Lessons learned during the financial crisis in 2008 led to additional safeguards and regulations. This left the banking system in a much stronger position to address liquidity concerns. The simple way to secure your own bank deposits is to limit your bank account balances to fit within FDIC insurance limits in case your bank fails.

What if I have over $250,000 at my bank and exceed the FDIC insurance?

If you have more than $250,000 in deposits, you may want to consider the following ways to protect your deposits:

Open a new bank account at a different financial institution. There is no limitation on the number of banking relationships that you can have. The FDIC coverage is $250,000 per depositor, per bank, meaning that you will have $250,000 of coverage for every different banking relationship that you have.
Add a joint owner. The FDIC coverage is also based on the type of account you have. For a single depositor, you will have up to $250,000 of coverage. But if you have a significant other, then adding your spouse gives you a total of $500,000.
Open up a different registration type. A separate entity like a Trust or LLC account is also eligible for its own $250,000 of coverage.
Join a credit union. Credit unions have a similar program to FDIC called NCUA which stands for the National Credit Union Administration. NCUA provides protection up to $250,000 per depositor, per account type just like FDIC. The main difference is that credit unions are not backed by the full faith and credit of the federal government.
Revisit why you have that much money sitting in a bank and consider moving your cash to a brokerage account held at a large custodian like Charles Schwab, Vanguard, or Fidelity Investments etc. Although you are limited to $250,000 under FDIC, brokerage accounts are covered by a different type of insurance called SIPC. SIPC stands for ‘Securities Investor Protection Corporation’. If a custodian is in financial trouble, the SIPC serves as a backstop. SIPC generally covers up to $500,000 between cash and securities similar to how FDIC works. Many custodians like Charles Schwab have purchased SIPC coverage that exceeds these limits to fully protect the deposits of those that have millions of dollars invested at their firms.

What does the collapse of Silicon Valley Bank mean for me?

The FDIC insurance is an important safeguard that helps promote stability in the banking system and protects depositors’ hard-earned money. It’s good to be aware of FDIC insurance coverage limits. However, for the vast majority of deposits, bank defaults don’t pose a risk because most depositors don’t have deposits that exceed FDIC insurance protection. So, you might ask, “why did I write this blog?”

I wrote this blog to reassure our investors that what is happening with Silicon Valley Bank and other recently mismanaged banks is not the beginning of a collapse in the banking system. Unforeseen events like this happen. These events cannot be accurately predicted or prevented. Every investment has potential risks as well as potential rewards. That is precisely why FDIC insurance for cash and a well-thought-out investment plan like the Perennial Income Model™ go a long way toward mitigating risks for investors.

History has taught us that our financial systems do a good job of protecting our money. Volatility is the norm and even though we experience periods of short-term volatility, the economy has proven to be quite resilient. This too shall pass.

Ready to learn more about our proprietary investment plan, the Perennial Income Model™? Learn more here or schedule a complimentary consultation here.