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Can You Count on Social Security to Fund Your Retirement?

Don Orban • Aug 17, 2020

Social Security is a critical piece of the income puzzle for most retirees. In fact, half of married retirees and nearly 70% of unmarried retirees rely on Social Security for more than 50% of their retirement income.1

 

Your Social Security benefit amount is based on a few factors, including your career earnings and your age at the time you file for benefits. However, your benefit amount isn’t locked-in forever. It often increases each year because of something called COLA.2

 

COLA stands for “cost-of-living adjustment.” It’s an annual increase in the benefit amount to help recipients cover increases in their cost of living. In 2020, COLA was 1.6%, down from a 2.8% increase in 2019.2

 

Since 2000, Social Security benefits have increased by a cumulative 53% because of COLA. The problem? Retiree spending has increased by more than 99%.2 While COLA can be helpful, it often isn’t enough to match inflation. In fact, since 2009, COLA has averaged only 1.4% annually.2

 

Fortunately, you can implement other strategies to protect your spending power and combat inflation. Below are a few ideas to consider:


Rely on other sources to cover healthcare costs.

Healthcare is one of the biggest drivers of inflation for retirees. In the past 20 years, Medicare Part B premiums have jumped 218%. Out-of-pocket prescription drug costs for retirees have increased 252%. Social Security benefits increased only 53% over the same period.2

 

If the past 20 years are any indication, you can’t count on Social Security adjustments to offset increases in healthcare spending. You may want to consider using alternate strategies, like funding a health savings account (HSA) that you can use in retirement for out-of-pocket costs.

 

You also may want to explore various Medicare Advantage policies. These are Medicare policies offered through private insurers. They often cover the same services as traditional Medicare, plus enhanced services. They also may reduce your out-of-pocket costs. A financial professional can help you determine which policy is right for you.

Continue to grow your assets.

You may be tempted to become more conservative in retirement. After all, you don’t want to lose what you worked so hard to accumulate over several decades. Adjusting to a more conservative allocation may be the right move for your needs and risk tolerance. However, it’s also important to continue to grow your assets.

 

Growth can help you increase your income over time and keep up with inflation. You can give yourself a personal COLA with increased distributions from your retirement accounts. There are a wide range of strategies you can use to potentially grow your assets, but also minimize your exposure to risk. Again, a financial professional can help you implement the right strategy for you.

 

Ready to develop your retirement income plan? Let’s talk about it. Contact us today at Midwest Retirement Advisors. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

 

 

1https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

2https://www.marketwatch.com/story/social-security-recipients-may-be-in-for-a-rude-awakening-later-this-year-2020-05-12?mod=home-page

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20278 - 2020/7/20

News

What Does a Biden Win Mean for the Economy?

12 Nov, 2020
In true 2020 fashion, the presidential election has been a rollercoaster ride. On Saturday, November 7, four days after election day, most media outlets projected Joe Biden as the next President of the United States.1 However, the call for Joe Biden didn’t come without suspense, as the country waited for days for ballots to be counted in Pennsylvania, Arizona, Georgia, and Nevada.1 As of Monday, November 9, President Trump and many members of the GOP claimed that the election had been marred by fraudulent activity, and they vowed to pursue legal options to resolve those alleged issues.2 Barring any legal rulings that change the outcome, it appears that Joe Biden will be sworn in as the 46th president on January 20, 2021. What does a Biden presidency mean for the economy, the financial markets, and for your nest egg? Taxes What does a Biden win mean for the economy? It’s difficult to say. One certainty is that a Biden administration would pursue a wide range of tax increases. Biden’s tax plan includes income tax increases for those making more than $400,000 along with increases in payroll taxes, corporate taxes, and capital gains. The Tax Foundation estimates that the Biden tax plan would reduce GDP by 1.62% over the long-term.3 COVID and Stimulus However, there are some who think a Biden presidency could positively impact the markets and the economy. David Wessel, director of the Hutchins Center at the Brookings Institute, said that the coronavirus pandemic and any possible stimulus are the biggest near-term economic issues.4 He added that the paths each candidate may take on those issues are substantially different. Biden is expected to push for a large stimulus package for both individuals and businesses. “In fact, that’s the scenario the stock market seems to be expecting and welcoming, even though Joe Biden is talking about raising taxes on investors,” Wessel said in an interview with NPR.4 Energy Prices Some also speculate that a Biden presidency may lead to higher energy prices. A recent study from GasBuddy reported that “a Joe Biden presidency would favor more environmental controls with respect to drilling and emissions, increasing fuel mileage standards, alternative vehicle power like electricity, expanded tax credits benefiting fuel efficient vehicle owners, and evolving from fossil fuels.”5 Patrick DeHaan, head of petroleum analysis at GasBuddy, added, “Biden would end drilling, curbing U.S. oil production and end fracking, which could potentially send oil prices and thus gas prices higher.”5 Is Biden or Trump better for the economy? Since it’s election season, there’s always speculation about which candidate will be better for the economy and the financial markets. However, the truth isn’t so clear. According to Michael Townsend, vice president of legislative and regulatory affairs at Charles Schwab, “Markets are not historically affected by which party wins the White House and/or control of Congress, and that seems to be the case again this year.”6 This year has been one of uncertainty, and that will likely continue in 2021, regardless of whether Joe Biden is president or not. Let’s connect today to analyze your strategy and take action to protect you from market and tax risk. Contact us to start the conversation. 1https://www.cnn.com/2020/11/07/politics/joe-biden-wins-us-presidential-election/index.html 2https://www.theguardian.com/us-news/2020/nov/08/donald-trump-concede-legal-challenge-republicans-joe-biden-golf 3https://taxfoundation.org/joe-biden-tax-plan-2020/ 4https://www.npr.org/2020/11/03/930722317/how-the-presidential-election-winner-could-effect-the-economy 5https://www.marketwatch.com/story/why-a-biden-presidency-may-lead-to-higher-gasoline-prices-11603992805 6https://www.azcentral.com/story/money/business/economy/2020/11/03/how-biden-trump-election-win-affect-stock-market/6127375002/ Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20570 - 2020/19

3 Financial Developments to be Thankful for in 2020

12 Nov, 2020
This year has been a rollercoaster ride. COVID has dominated the headlines and impacted every aspect of our lives. It has shut down businesses, schools, and workplaces. It’s changed the way we interact and socialize. And of course, it has deeply impacted the economy and the financial markets. It can be hard in 2020 to find the good news, but there actually are a few economic developments for which we can be grateful. There’s also quite a bit of uncertainty ahead of us. As we approach the end of 2020, now may be a good time to reflect on what has transpired over the past 11 months, and what steps you may need to take to prepare for what comes next. Below are three positive developments that you may want to consider as you prepare for 2021: The Markets Rebound COVID ended the longest bull market and longest economic expansion in history. The previous bull market started in 2009 and lasted for nearly a decade before crashing in just a few short weeks over February and January of this year.1 Between February 19 and March 23, the S&P 500 fell 33.93%. Since that point, though, the markets have surged. From March 23 through October 29, the S&P 500 is up 47.94% and is nearly back to its pre-COVID levels.2 As mentioned, though, there is still uncertainty ahead. The COVID pandemic is far from over. There’s also uncertainty about how the results of the election will impact the markets, the economy, and the country’s COVID response. While the market's rebound is a fortunate turn of events, there’s no guarantee that it will continue. Now is a good time to evaluate your strategy and lock-in any gains before another potential downturn occurs. A financial professional can help you explore options. GDP Surge In the second quarter, GDP fell by 31.4%, the largest quarterly drop in history. In the third quarter, it rebounded by 33.1%, the largest quarterly gain in history. That number easily beat the previous record of 16.7% in the third quarter of 1950.3 Much of the rebound was driven by the service industry and the reopening of much of the economy. Of course, the continuing rise in COVID cases may threaten the economic rebound. Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.4 CARES Act Financial Flexibility The COVID pandemic and its economic fallout have created financial challenges for millions of Americans. While the government is still debating a second round of stimulus, the first round, known as the CARES Act, continues to provide financial flexibility for those facing difficulties. As part of the CARES Act, you can withdraw up to $100,000 from your 401(k) or IRA without facing early distribution penalties. The taxes on the distribution can even be spread out over a three-year period.5 Granted, withdrawing money from your 401(k) or IRA isn’t the best strategy for your retirement. However, it is an added measure of flexibility that didn’t exist prior to this year and it could be a blessing if you’re struggling due to the COVID pandemic. The end of 2020 is approaching. It’s been a rollercoaster ride, but there have been some positive developments, especially in the second half of the year. Let’s talk about how to protect what you have and limit your exposure to future risk and uncertainty. Contact us today at Hampton Financial Services and let’s start the conversation. 1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html 2https://www.google.com/finance/quote/.INX:INDEXSP 3https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html 4https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html 5https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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