Your Retirement . . . with Brian & Bob: Half of retirees wish they had planned better for their retirement
According to Barron’s, half of retirees wish they had better planned for the economic climate we are experiencing.
By Robert Price and Brian Harrigan
As we inch closer to 2021, the anxiety for most Americans is almost palpable. Between the uncertainty related to COVID-19, stock market volatility, another potential stimulus package and the upcoming administration change, this is to be expected.
A recent study conducted by the Alliance for Lifetime Income demonstrated that 80 percent, or 4 in 5 Americans do not have a specific retirement plan they follow. For many, social security will represent 50 percent or more of their income during the “golden years” of retirement. Sixty two percent of current retirees lean on the program for at least half of their monthly income. This begs the question, if I’m reliant on social security as my main source of income, can I really refer to retirement years as “golden?” For most Americans that answer is a resounding “No” and should be a call to action for planning other sources of income in retirement.
When planning for Social Security for a portion of an income stream many are concerned about getting the amount they expect. Before COVID-19 it was estimated the current workforce could support 75 percent of what the government pays out in 2035. Experts say this will now happen sooner. This doesn’t mean you won’t get what you expected (although that is possible with changes in legislation), it means the other 25 percent has to be made up from somewhere. Experts say this will happen sooner and to expect increased taxation. Regardless of who is in power, taxes must increase and at a quicker rate now due to COVID-19.
Most Americans probably do not remember when the government promised Social Security was never to be taxed. Over the years this has changed to where 50 percent and now 85 percent can be taxed if your income is above a $40,000 per year threshold. Planning for income in retirement and leveraging 8 percent annual increases in social security benefits up to age 70 is advisable if you can swing it. More and more financial planners are encouraging clients to defer drawing from social security as long as possible and encouraging a spend down of qualified money first. This strategy is expected to save on future taxes and help maximize the minimal cost of living adjustments (only 1.3 percent in 2021) that have not historically matched inflation.
Since 2000, seniors have watched their purchasing power decrease by 30 percent. This means the same $100 they had in 2000 will only buy $70 of goods/services in today’s market. Increases to medicare costs, tariffs on goods, and other increased costs of living due to COVID-19 certainly more than offset the increased cost of living adjustment. An increase of 1.3 percent is the second smallest increase given since 1975 adding to the problem of the dollar’s reduced purchasing power.
According to Barron’s, half of retirees wish they had better planned for the economic climate we are experiencing. Given the details, there isn’t a lot to be excited about for social security recipients and we as Americans have a duty to second guess what the government tells us. While no one can predict “exactly” what will happen in the future, history tells us a lot and often repeats itself.
Don’t be caught off guard by changes in legislation and reduced purchasing power of social security dollars. There is a light at the end of the tunnel but taking action now is key to success. Start evaluating what you expect to draw in social security and from other retirement accounts. The income gap you uncover, could shock you. There are financial vehicles with market protection that can help address this gap. Some can even provide tax free money which will be more valuable down the road as taxes increase. To learn more about plans that provide peace of mind and are tailored to your needs, contact a financial professional.