Displaying items by tag: social security
There are a record number of people with over a million in the 401(k) accounts which means even more people are considering retirement in the upcoming year. However, there are lots of factors that investors need to consider before even thinking about early retirement. Many consider a $1 million nest egg enough however the 25x rule (retirement is 25 times your annual expenses) might not go far enough. Rising healthcare costs are eating away at existing retirement accounts, and many fail to accurately gauge their retirement healthcare costs. Additionally, rising inflation is eating away at the paper wealth and needs to be a factor in. If you are planning on retiring early you will need a series of tax loopholes to do so without paying high penalties. Finally, an early retirement needs to rebalance their portfolio to a less risky strategy sooner which may leave you with less than you were projecting.
FINSUM: Meet with an accountant or your financial advisors so you can fully gauge how expensive an early retirement could actually cost.
Most all Americans rely on medicare during their retirement as a means of subsidizing or paying for their healthcare. This year is more critical than ever as changes hit medicare payments because the U.S. is seeing a spike in inflation that eats at retirement funds and might put many in a bind. Medicare costs are split into two main categories: Part A, hospital coverage and Part B, outpatient care. Most don’t pay for a Part A premium and for those that don’t meet the work requirements costs aren’t changing much about $28 for the year, but Part B is a different story. For the lowest income category, the payment is up to $21 a month, and that only increases as tax returns increases. Individuals should appeal their part B premium if their income had a significant change.
FINSUM: These healthcare cost changes are huge, and retirees need to address them in their portfolio given spiking prolonged inflation.
Millions of Americans are reliant on the social security payments as they shift into retirement, and while SSA boosted the amount in checks by 5.9% it pales in comparison to the record CPI numbers. The CPI climbed at a jaw-dropping 6.8% in November, which skims a healthy amount from the bottom line. Another large factor eating at people’s retirement social security is Medicare Part B premiums and are cost-of-living reducer. Medicare Part B premiums will subtract 29% percentage points from the Social security Take home over the next 30-years. Finally, retirees should be wary that their prescriptions are covered by Medicare because otherwise, they will be a hefty retirement expense.
FINSUM: It’s outrageous that social security and other retirement accounts aren’t keeping pace with the actual costs of retirees, and needs to factor into investment decisions.
Inflation is a concern for retirees, but they should be more concerned than ever becauseSocial Security is tracking the wrong index. Currently Social Security bases its cost of living adjustments on the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W doesn’t fully account for the costs of healthcare and housing that burden retirees more than other groups. Instead social security should track the Consumer Price Index for Elderly (CPI-E) because this is the demographic they are targeting. Research shows that the average social security account since 1983 is in a 0.2% compounded deficit. The rate of inflation for healthcare is slowing which could end up benefiting retirees moving forward but that's just a prediction.
FINSUM: Social security won’t be keeping up with your healthcare costs and investors should augment their portfolios to compensate.
Retirement is a rising concern for many Americans, and that concern is only amplifying with one of the largest retirement populations—social security—being funded by a much smaller cohort of funders. About half of the population is concerned they will out-live their savings, and that’s justified given average life expectancy is almost 20 years longer than retirement. However, the 2019 Secure Act is opening new doors in retirement investing, annuities, by relieving employers legal liability for annuities. Rather than the typical safe assets like bonds that slowly integrate into the portfolio as one nears retirement, companies like BlackRock will also fund annuities. They aim to allocate 10% of your funds by the age 55 and take that share to nearly 1/3rd by retirement age. These annuities typically come with a fixed rate of return on the principle and these integrated 401k plans will become available starting in 2022.
FINSUM: Annuities can definitely bridge the gap for those skeptical that social security will fill their cup, but they still come with plenty of risk despite the ‘guaranteed’ income many might expect.