Opinions are good until they turn political.
I was always told there are a few topics you do not discuss at work: religion and politics. Well, I will break that rule this time because how can politics not be on anyone’s mind as we round the corner to election day?
Do you wonder how one of the world's most influential people feels about the impact of your retirement?
Do you wonder if social security benefits will last through your lifetime?
I will share some of my research on these puzzling questions, which could impact our future, and who makes these decisions on our behalf.
We need to start by understanding the disposition of appropriated funds from A to Z. Our government has three branches: the legislative branch makes laws, the executive branch enforces laws, and the judicial branch interprets laws.
Since I know most school systems do not teach financial literacy, I do not want to assume there is an understanding of the three branches of government, so let's cover that quickly. As a former Political Action Committee Treasurer in my career, I've found this was useful information, so here is a quick overview.
Congress is the legislative branch of the government and consists of the Senate and the House of Representatives. The Senate has 100 senators, two from each state, and the House of Representatives has 435 representatives, with the number of representatives from each state based on its population.
The House of Representative membership was capped at 435 in 1910 and has not changed, except temporarily the year Hawaii and Alaska were admitted as states.
The House of Representative seats are reapportioned after each census to determine which states gain and lose seats.
Since the legislative branch makes the laws, knowing which states determine the laws was always interesting to me. For Senate and House, California has 54 seats, Texas has 40, Florida has 30, and New York has 28. You may want to pay attention to these states as a third of the laws are derived from who is elected in these states. Now, you can understand why there are so many visits by presidents-elect to these states, they want elected officials on board with their agenda. Speaking of the president, let’s discuss the executive branch.
The president leads the executive branch, including the vice president and the cabinet. The president nominates cabinet members, who the Senate then approves.
Where was the cabinet concept derived from? I'm glad you asked. I'm just kidding. George Washington set the precedents for how these roles would interact with the presidency, establishing the cabinet as the chief executive’s private, trusted advisors. He had five cabinet members.
How many cabinets are there? The cabinet now includes the vice president and the heads of 15 executive departments, including Agriculture, Commerce, Defense, Education, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, Labor, State, Transportation, Treasury, and Veterans Affairs—and finally, the Attorney General.
The president delegates work to the cabinet members to carry out his/her agenda to implement the laws. They meet frequently to advise the president on any battles he/she may face. As they carry out the president's agenda, they may come into question, which is why we have the judicial branch.
The judicial branch includes the Supreme Court and other lower courts. The Supreme Court is the highest in the country and comprises nine justices who interrupt laws according to the Constitution.
Now we have the basics, so how do the president or branches of government impact my retirement accounts and/or social security? The Department of Treasury (in the executive branch) oversees the Internal Revenue Service, which we are all familiar with. The Internal Revenue Service oversees the governance of IRAs.
IRA contribution limits are set by law (the legislative branch) to ensure that high earners don’t benefit more than average workers from the tax advantages of retirement savings plans. The difference between IRAs and 401(k)s is that 401(k)s are intended to encourage employers to offer retirement plans. If employers did not offer a retirement plan, IRAs were initially designed as alternatives. I bring this up because I frequently am asked why the contribution limits of an IRA are so low. Now you know.
The next question is, can I contribute the maximum allowable to my IRA and 401(k)? The answer is yes, you can.
That is all good and great, but let’s say you are a high-income earner. Government laws want IRAs to be treated equally among Americans, no matter their income. So then, why does the law discriminate against high-income earners, precluding them from contributing the same amount to a Roth IRA as a non-high-income earner?
When government lawmakers create laws, the implementation and loopholes that will be made are unknown. When lawmakers create laws excluding a segment of the population, they should know that workarounds will be deployed within the constraints of the rules as defined. This is precisely what has happened with Roth IRAs as the law excluded high-income earners from contributing to a Roth IRA to have the same advantages as everyone else to earn tax-free income in a Roth IRA. Individuals, no matter what their income, can convert to a Roth IRA, therefore removing the restriction of earned income thresholds.
The “fairness factor” has come into question during the last four-year term, and even though legislation was written but not passed to redefine a law to restrict high-income earners up to a certain amount in conversions to a Roth IRA, it was not fully passed. Are politics involved in this decision to stall this change in law? You better believe it. The first iteration was to eliminate the ability of high-income earners to make a conversion at all, but that did not fly. The second iteration was to put limitations on the total amount, and that one made it halfway through the lawmakers and then stalled out. Maybe they saw how it would affect them as high-income earners. Who knows?
Politics does affect your IRA. It is to your benefit to stay informed and voice your opinion.
Now, let’s shift gears to social security benefits. Everyone loves this topic. Over the last few months, how many commercials have you seen about lawmakers wanting to do away with social security, whether it was a campaign ad or maybe it is the politician's agenda?
The Social Security Administration is an independent agency within the executive branch. Everyone wants to know where the presidential candidates stand on this topic, and that’s why.
Social Security was created with a fairness factor, too, and it is intended to be available to all who paid into having this retirement plan in the future. The exciting part about this retirement plan is that you do not have a choice whether you pay into it or not. Yet you hear political candidates discussing eliminating the Social Security retirement plan you just paid for 50 years before you retired, with no option to keep the money and invest it yourself.
Will lawmakers determine whether Social Security continues, the plan is eliminated, or if payouts are increased or reduced? The national deficit contributes as reserve funds may need to be allocated elsewhere instead of appropriately addressing Social Security shortfalls. According to the Social Security trustee's report in late Spring 2024, the fund reserves that help pay for Social Security benefits will run out in 2035. And that is where the news reporting stops. They fail to mention that when the reserves run out, benefits will be reduced to approximately 80% of their full benefits. There has been a shortfall in Social Security benefits for a long time. We are just so used to printing more money that it likely got swept under the rug with the $35 trillion. The remaining 80% that would be paid out comes from replenishment from the active workforce today. A reduction in the amount may be possible, but elimination is unlikely.
With the average Social Security monthly payment at $1,800 and the average rent in America at $1,750, we all know that Social Security will not cover the bills.
With a self-directed IRA, you are essentially in control of your financial future, much like sitting in the oval office of the executive branch directing your retirement investment agenda. Unlike traditional IRAs, which limit your investment choices to stocks, bonds, and mutual funds, a self-directed IRA offers a broader range of options such as real estate, private equity, and other alternative assets. This flexibility gives you the judicial power to evaluate your investments according to your personal financial goals and risk tolerance, your personal constitution. By taking an active role in managing your funds, you can ensure that your hard-earned savings work for you in a way that aligns with your retirement vision. Making well-informed decisions about where to allocate your money can help you avoid financial setbacks, prevent losses, and safeguard your retirement from unnecessary risks or a potential "shutdown" due to poor investment choices. It’s about using the autonomy your self-directed IRA provides to create a diversified, stable, and profitable portfolio for your future. So, appropriate your hard-earned funds to a Self-Directed IRA and avoid a shutdown of your retirement.