The largest cost-of-living-adjustment since 1982 impacts 90% of seniors
On October 13th, the Social Security Administration announced that Social Security and Supplemental Security Income benefits for tens of millions of Americans will increase in 2022. The press release stated the following:
“Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 5.9 percent in 2022.
The 5.9 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries will begin on December 30, 2021. (Note: some people receive both Social Security and SSI benefits).
The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000.”
Biggest Leap Since 1982
This 5.9% leap in the annual COLA is the largest since 1982. According to the Social Security Administration, retirees will see an average of $92 added to their monthly benefits next year, raising the typical amount to $1,657.
Further, almost 9 out of every 10 people over the age of 65 receive Social Security and collectively, the social security payments make up about a third of their income (although that number is much higher for lower income seniors).
Keeping Pace with Inflation?
Of course there were many factors that went into making this COLA decision, including inflationary data points and when the Fed might taper its bond buying program in an effort to curtail inflation. But the latest press release from the Bureau of Labor Statistics in September reported that the Consumer Price Index for All Urban Consumers increased 0.3% in August after rising 0.5% in July. And over the last 12 months the All Items index increased 5.3%.
When to File for Social Security
Social Security benefits constitute a big part of many retirement plans. Advice abounds about how and when you need to file. What is best for you and your family?
Generally, you can file for your Social Security retirement benefits when you reach age 62. But doing so will reduce your benefits by as much as 30% below what you might receive if you wait until your full retirement age. Accordingly, most financial advisors recommend you delay filing to better maximize your lifetime benefits.
If you wait until your full retirement age – which is 66 for most people – you will get your full benefit. Or you can wait until age 70, which will increase your benefit because you earned what is called “delayed retirement benefits.”
In other words, there is no one-size-fits all answer to when you should start receiving Social Security.
Social Security is Only Part of Retirement
It is important to remember that although Social Security plays a very important role in supplementing one’s retirement income, it was never meant to be the only source of income.
In fact, even the Social Security Administration states that Social Security benefits will – at best – cover about 40% of the typical worker’s pre-retirement income. But the key word is “typical” because everyone is different.
And to make matters more dire, those contemplating retirement – which is everyone – should know that Social Security has a funding issue: by the year 2033, the Social Security trust fund will be at $0 and will only collect enough taxes to pay about 76% of scheduled benefits.
In other words, your retirement might be somewhat dependent on Congress stepping in to fix this shortfall.
Make Sure You Plan with Your Advisor
Talk to your financial advisor to make sure your retirement planning is not dependent on Congress taking action.
Unique health and caregiving worries and an industry that doesn’t listen well
Women have special concerns about financial security that financial advisors need to address. For one thing, they tend to live longer than men, so they need to worry about paying for an extended old age. For another, women of all ages are an increasingly dominant part of the economy.
Pick up any newspaper, turn on the TV or tune into any radio program and you will notice the clout of women in the marketplace, community affairs, business, politics and finance.
The data is remarkable and underscores the need for conversations that financial advisors should have with their female clients, recognizing that the challenges women face are myriad.
- Women comprise 51% of the U.S. population and roughly 65% of the workforce.
- They are the sole heads of 32% of American households.
- 60% of college students are female.
- Women control 65% of global spending and more than 80% of U.S. spending.
Establishing Financial Security
A survey by Family Wealth Advisors Council indicates that 54% of women consider health a major risk to their financial future. They worry about their death and the death of their spouse as a major risk. So, is your disability insurance lacking or inadequate, and will your life insurance deliver sufficient financial horsepower if the breadwinner dies? Are you sure?
A surprising number of women, single and married, do not have wills and have not provided for their children. And the International Foundation for Retirement Education states that the number one retirement issue for women is the threat of poverty. Consider that of people age 85 and older:
- 71% are woman;
- The median income for older women is $15,248; and
- The median income for older women is only 53% of that of older men.
Did you know that of unpaid caregivers, 57% are caring for parents, and over 70% of caregivers are women? When women assume caregiver roles, they are 2.5 times as likely to end up in poverty as non-caregivers single caregivers are four times more likely to end up in poverty than married women.
Families should discuss financial security, for both the baby boomers and their parents. Understanding the ins and outs of long-term care insurance is important in the planning process.
Women & Financial Planners
Right now in 2021, women are under–served by the financial services industry, because there is still a huge disconnect between the women who have a financial planner and the women who want one. Consider this: the Center for Talent Innovations reported that 75% of women under the age of 40 do not have a financial advisor.
Why is it that so few women get the advice that they need? It could be that the disconnect lies in the fact that between 15–20% all financial advisors are female, according to Barron’s.
Now, this is not to say that women should only work with female advisors, but we all know that many men do not communicate with women effectively (of course it’s true the other way too). And a survey by Boston Consulting Group found that 70% of women that do have financial advisors felt that their advisors were patronizing or disrespectful toward them. The study showed that these advisors made assumptions about women’s risk tolerance and therefore limited their clients’ investment options.
These miscommunications may likely be the main reasons there is still a giant gap between the women who have a financial advisor and those who do not. This is especially surprising because Fortune recently reported that women control about $14 trillion in the United States, the equivalent of the combined gross domestic product of China and India.
The good news is that the financial industry realizes that it ignores women, who are responsible for most financial household decisions, at its own peril. We are seeing a huge movement of professionals that want to be more responsive to their female clients. The industry finally realizes how much power women truly hold.
Women have the power and ability to effect a lot of change in the world, especially since they now control so much of America’s wealth.
It’s About You
If you are among the 75% of women who don’t have a financial advisor, don’t let your fears about feeling judged and misunderstood stop you from getting advice to create the financial life of your dreams.
You can seek out someone who does understand where you’re coming from. You can find a financial planner you can relate to and feel comfortable.
Talk to your family, friends and colleagues. Get recommendations and then interview financial advisors until you find the right fit.
Your future-self will thank you
Two employee-benefit actions to take before you accept that new job offer
Are you considering changing jobs this year? If not, you’re in the minority. A survey conducted by Harris Poll found that the majority (52%) of U.S. workers are considering a job change this year – and 44% have real plans in place to make a change. Think about that. Picture your co-workers or your team. More than half are thinking about leaving.
Of course there are many reasons people look for a new job, beyond just the thought of making more money (although that’s a big one). Gone are the days when we work for a single company all our working life. In fact, we often hear that people make at least half a dozen job changes in their lifetime and multiple career changes too.
Trouble is, with all the statistics that are tracked, there really is very little actual data to back up those statements. But, within the U.S. Labor Department resides the Bureau of Labor Statistics and there is quite a bit of data that they do track.
Average Job Tenure
For example, the BLS reported that employees have worked for their current employer for an average of 4.6 years – that alone is telling. Further, how long one works for an employer is affected by one’s age and occupation:
- Managers, professionals, and similar occupations reported the longest median tenures at 5.5 years.
- The median tenure of workers in service occupations was the shortest at 3.2 years.
- Workers age 65 or older have an average job tenure of 10.3 years.
- For workers age 25 to 34, the median tenure is 3.2 years.
What Age Will You Be When You Change?
Indeed.com reports that the average age a person changes careers is 39 years old. Seems like a mid-career crisis of sorts doesn’t it? Well consider that as people get older, they change jobs less frequently.
- Between the ages of 18 and 24, people change jobs an average of 5.7 times.
- The average number of job changes between 25 and 34 years old is 2.4.
- From 35 to 44 years of age, the average decreases to 2.9 jobs.
- It’s 1.9 jobs from 45 to 52 years of age.
Based on those numbers, it can be estimated that most people will have 12 jobs during their lifetime. And the reasons people change careers and jobs are varied.
Tips Before You Change Jobs
Again, looking for a new job can be stressful. But starting a new job can be exciting. Your future-self will thank you if you take the time to manage your employer-provided benefits while moving from one job to the next. In fact, since it is likely that your new employer-provided benefits will be different from the ones provided by your own employer, not only do you need to compare the two, you need to decide how to manage the changes before you leave your old employer. Here are two really huge things to consider.
Often times there is a waiting period before health coverage begins at your new employer and that wait can be upwards of 30 to 90 days. As such, you want to make sure you are not uninsured, even if you think you’re perfectly healthy. So you need to explore whether you can continue under your former employer’s health insurance.
Did you know that under a Federal law known as the Consolidated Omnibus Budget Reconciliation Act (COBRA), you can continue as a member of your previous company’s health plan for up to 18 months after termination of employment, unless you are terminated for cause?
Of course you should also know that you will be responsible for paying the entire premium, including anything your previous employer contributed. Yes, it will likely be expensive, but it will also likely be cheaper than paying for an individual policy. But make sure you know the rules ahead of time.
For example, you might not be able to continue COBRA if your former employer has fewer than 20 employees. And you do need to advise your employer that you are electing COBRA coverage in writing.
Retirement Plan Rollovers
Are you invested in your soon-to-be-former employer’s 401(k) plan? What do you plan to do with those assets? You can reinvest, transfer or even cash in the funds.
But to keep your retirement plan on track, you may want to consider rolling over the funds into another qualified retirement savings account, such as a rollover IRA. But there are right ways and wrong ways to do this.
First, it depends on how old you are as to whether or not there might be penalties.
It’s possible that you might even leave the funds right where they are, but you need to know your soon-to-be-former employer’s rules.
You might also roll over the funds into your new employer’s retirement options. Again, know the rules.
Check with the benefit administrators at both companies and ask your financial advisor for help. Your future-self will thank you.
Taking money out of retirement without a plan is a recipe for trouble
You‘ve saved for years. Now that you are retired, did you create an income plan from your savings?
The financial industry and media constantly talk about the need to save for retirement. Put money into your 401(k), contribute to your individual retirement accounts, and one day, when you are ready to retire, that savings becomes income for you.
But how does that actually happen? Here are five simple steps to make sure it does:
- Determine how much you need to spend to live a life you enjoy. This should always be the first question because the answer ultimately drives the rest of the decisions. How much money do you need each month to cover your essential expenses, and to also cover the fun things that you’d like to do in retirement? Tracking this spending for the first few years of retirement is critical, since expenses can run higher than expected. You should be aware of these fluctuations and make adjustments accordingly.
- Make the most of income sources other than your savings. There’s a tremendous amount of benefit that some smart planning can do for you. For example, choices like when to start taking Social Security can cut your retirement income by 25% or boost it by an additional 32%. Married couples can use strategies like claiming spousal benefits to increase income substantially. If your income comes in the form of rental properties, then do you need to factor in expenses for maintenance? Should you hire a property management company so that you don’t have to take phone calls from tenants while you’re on vacation? Run through the numbers for your personal situation and make the right decision.
- Decide how much risk you are comfortable with. Your level of comfort with risk determines how you allocate your portfolio. In retirement, people usually don’t want much risk because they’re concerned about markets and fluctuations. Yet the reality is that for a 30-to-40-year retirement with inflating expenses every year, some allocation to growth assets is helpful if not necessary.
- Figure out how much income you need your savings to generate every year. The amount is your total estimated expenses minus your Social Security, pensions or real estate income. Once you know how much you need each year, you can then begin to formulate a distribution strategy (which is another topic altogether).
- Identify how much you want to leave to your heirs. For some, this is a top priority. For others, they want to spend as much as possible while they can.
Like most planning questions, there are no right or wrong answers. If you plan to leave behind a substantial inheritance, just be aware that it might place limitations on your income.
Your Financial Advisor
Creating an income plan is a really important step in your retirement years. And layering on the unpredictability of investing, you might ask yourself how you prepare your retirement portfolio for all of it? Well, one major key to successful planning while in retirement lies in following wise strategies. Your financial advisor understands these strategies and is a great source for information about how to handle your money as you live your retirement. Your financial advisor’s role is to prepare for the best – and the worst – of anything. The world is just too unpredictable to do less.
A framework to help you be among the 8% that sticks to resolutions
Will you make a New Year’s resolution this year? One of the smartest ones could be to get your finances in order. But keeping that promise to yourself is another matter.
A lot of people make money resolutions. According to study after study, the most popular resolution every year is to lose weight, followed by getting organized and saving more money. It’s good to see that a financial-related resolution is in the top three.
Here is a framework for making that New Year’s resolution stick.
Past Performance is No Guarantee
Many Americans are still trying to dig out of the hole after the 2008-09 financial crisis and the COVID bear market of 2020. Some of us are feeling like we missed the bull market of the past 10+ years, or the market rebound post COVID-bear, and might take on too much risk in an effort to catch-up.
No matter your past investing history, there is always more we can do to better the financial picture for ourselves and our families. The key is to make a plan.
Sadly, some don’t bother making a New Year’s resolution because it seems futile. Indeed, few of us are able to keep to what we resolve each year. Did you know that while the majority of us make resolutions every year, less than 8% actually keep them?
This doesn’t have to be the case. There is every reason to make next year your year to accomplish what you set out to do. Here are some tips to help.
Involve Family and Friends
Get your family involved to help you follow through. You can also share your resolution with others, and have someone keep you accountable.
If you decide that you want to set a budget and save a specific amount each month, see if a friend wants to do the same. At the end of each month, check in with one another to make sure you are both on track.
Create A Budget
The centerpiece of a financial resolution is to create a budget for the entire year. This isn’t as daunting as it sounds. Decide with your partner and family members what the big expenses are for next year. Will you need to buy a new car? Take a vacation? Fix the roof or replace the air conditioner? By planning ahead and setting aside money in advance, these expenses don’t hit your pocketbook as hard as they would if there were no plan. A family budget is a great learning opportunity for kids, as well.
Don’t allow mistakes you made in the last 12 months to affect your goals for the coming year. Allow yourself to mentally wipe the slate clean. Use previous stumbling blocks as your new goals for next year.
Perhaps you had trouble with credit card debt, stress at work or gained a few extra pounds. Involve those challenges into your New Year’s plan. Setup a timeline for paying off debt, schedule time to de-stress and get away from the office, meet with a personal trainer or create a fitness plan that will work best for you.
Write it Down
Don’t forget to write down what you want to achieve and place it somewhere you see it each day. If nothing reminds you of your goals, then it becomes much more challenging to attain them.
Finally, talk to your financial advisor to make sure your resolutions are consistent with your long-term financial plan. And your financial advisor can be a great accountability partner too.