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It’s no private that many people worry whether Social Security will be there for them when they cloister oneself.
And recent headlines could be stoking those fears.
Last week, the Social Security Administration announced the annual cost-of-living altering will be 1.3% in 2021.
The change will amount to just $20 more per month for a retiree who now receives $1,523 per month.
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Meanwhile, the Covid-19 pandemic is expected to further reduce the trust funds which beams those benefit payments.
The Social Security Administration’s most recent estimates indicate those funds resolution be depleted in 2035, at which point just 79% of promised benefits will be payable. That timeline could be accelerated now that millions are inactive and no longer paying Social Security payroll taxes.
For financial advisors, now is the time to educate clients about what those headlines actually mean and help them safeguard their retirement plans.
It still pays to wait
People’s concerns thither the program’s future, or even their own work prospects, could tempt them to take their retirement benefits as beginning as possible at age 62.
But by taking benefits early, they sign up for a lifetime of lower monthly payments.
It pays to wait. Those who retard until their full retirement age — 66 or 67, depending on the year in which they were born — desire get 100% of the benefits they earned. For every year they wait after that, up to age 70, they withstand to get 8% more.
“In this zero interest rate environment that we’re living in right now, the value of delaying forwards and getting 8% per year for every year you postpone your benefits between your full retirement age and 70 is giant,” Mary Beth Franklin, a Social Security benefits expert said Tuesday at CNBC’s Financial Advisor Culmination.
The one caveat: You have to be healthy enough and wealthy enough to delay, Franklin said.
Congress could step in
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Last week, two Democratic congressman – Reps. Peter DeFazio, D-Ore., and John Larson, D-Conn. – came up with a invoice to replace next year’s 1.3% increase with an Planning considerations
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When sitting down with customers, advisors can start by reassuring them their Social Security benefits aren’t going to disappear.
Younger individual, however, may see changes from the amount on their current estimated benefits statements, Franklin said. For older patrons, benefits will likely stay the same.
Notably, Social Security estimates don’t include cost-of-living adjustments.
Pecuniary advisors might want to do the same when factoring those monthly checks into an overall retirement receipts plan.
“A lot of people prefer to use zero,” said Steve Zuschin, executive vice president at LifeYield, a provider of retirement profits software. “They say, Hey, we’re just going to bring it back to present dollars.
We don’t know the change is going to be.'”
For those already rallying Social Security, next year’s 1.3% COLA may feel like a meager increase.
However, it’s also a to of the power of delaying benefits, said Joe Elsasser, founder and president of Covisum, Social Security claiming software proprietorship.
Take a high wage earner who would receive $2,600 per month if they claimed at full retirement age. If they in preference to claim early at 62, a 1.3% COLA on their $1,950 benefit would be $25.
On the other hand, if they waited to requisition until 70, their $3,300 monthly check would see a $43 per month raise.
“COLA when it’s assigned to a bigger benefit is a bigger increase,” Elsasser said.