Will my social safety be sufficient? How monetary advisors can put together shoppers for retirement
It’s no secret that many people worry if Social Security will be there for them when they retire.
And the latest headlines could fuel those fears.
Last week the Social Security Agency announced that the annual cost of living adjustment would be 1.3% in 2021.
The change is just $ 20 more per month for a retiree who is now receiving $ 1,523 per month.
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In the meantime, the Covid-19 pandemic is expected to further reduce the trust funds that support these benefit payments.
According to the latest estimates by the Social Security Agency, these funds will be used up by 2035. From this point on, only 79% of the promised benefits are due. That timetable could now be accelerated with millions out of work and no longer paying wage tax.
Now is the time for financial advisors to educate clients about what these headlines really mean and help them secure their retirement savings.
Still worth the wait
People’s concerns about the future of the program, or even their own job prospects, could lead them to claim their retirement pension as early as possible at the age of 62.
By taking the benefits early, they sign up for a life with lower monthly payments.
It is worth to wait. Those who defer to their full retirement age – 66 or 67, depending on the year they were born – get 100% of the benefits they deserve. For every year they wait until they are 70 years old, they get 8% more.
“In this zero-interest environment that we live in right now, the value of deferring benefits and getting 8% per year for every year you move your benefits between full retirement age and age 70 is enormous,” said Mary Beth Franklin , a The social security benefits expert said Tuesday at CNBC’s Financial Advisor Summit.
The only caveat: you have to be healthy and rich enough to delay yourself, Franklin said.
Congress could step in
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Last week, two Democratic Congressmen – Reps Peter DeFazio, D-Ore., And John Larson, D-Conn. – Tabled a bill to replace the 1.3% increase next year with an emergency COLA of 3%.
The legislator hopes that the proposal will be included in the current business cycle talks.
“We hope this becomes part of the ongoing negotiations,” DeFazio told CNBC last week.
If that change isn’t possible now, it could be revised with a new Congress in January, Franklin said.
“Depending on who controls the Senate and who controls the White House, this may be reintroduced in January,” Franklin said. “Depending on where the policy is, it may have a chance.”
There are also proposals to restore the solvency of the program. Democrats in Congress have tabled plans to get the program going again. Democratic presidential candidate Joe Biden also has a proposal to prop up the system.
It is likely that Congress will make corrections before any significant benefit cuts occur, Franklin said.
When consultants sit down with clients, the first thing they can do is reassure them that their social security benefits will not go away.
However, younger people might see changes from the amount in their current Estimated Credits, Franklin said. For older customers, the benefits are likely to stay the same.
In particular, social security estimates do not include adjustments to the cost of living.
Financial advisors may want to do the same when they include these monthly checks in a general retirement plan.
“A lot of people prefer to use zero,” said Steve Anbin, executive vice president of LifeYield, a provider of retirement income software. “They say, hey, we’re just bringing it back to showcase dollars.
We don’t know that will change. ‘”
For those who are already collecting Social Security, the COLA of 1.3% next year could feel like a meager increase.
However, it’s also a reminder of the possibility of delaying benefits, said Joe Elsasser, founder and president of Covisum, a social security software company.
Take a high earner who would make $ 2,600 a month if he were to file claims at full retirement age. Instead, if they claim early at age 62, a COLA of 1.3% for their $ 1,950 benefit is $ 25.
On the other hand, if they waited until 70, their monthly check for $ 3,300 would mean an increase of $ 43 per month.
“COLA, when applied to a larger benefit, is a larger boost,” said Elsasser.