If you are like many Americans who watch the news, inflation is probably on your mind. Since the Covid 19 pandemic began costs have been rising. We are still facing the effects of the supply chain breakdowns brought on by the pandemic in addition to extreme worldwide weather events.
These events have led to an increase in the price of goods on everything from fuel to food to lumber. This type of inflation can be stressful for the average working family but even more worrisome for those on the cusp of retirement.
Listen in to hear the latest Social Security news and learn how you can combat rising costs. Make sure to scroll down to the bottom of the show notes to access all the links mentioned in this episode.
If you are already retired and receiving your Social Security benefits, I have good news! The annual cost of living adjustment (COLA) will increase by 5.9% in 2022 which will boost the individual income of recipients by about $92. This is the largest increase in Social Security benefits since the 7.4% augmentation in 1983.
Over the past decade, the rise in COLA has been negligible, only averaging 1.65%. This minimal increase is due to the way COLA is calculated. This calculation is based on the change in prices of a market basket of goods as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW).
Even with next year’s close to record-breaking increase, COLA may not be enough to truly combat inflation.
Despite yearly inflation adjustments, Social Security benefits have decreased their buying power by 32%. Even though COLA has increased benefits by 55% since 2000, senior citizens’ expenses have actually increased by 104.8% over this same timeframe.
This ThinkAdvisor article has a photo slideshow that illustrates 10 costs that older Americans have seen risen over the past 20 years.
The article cites The Senior Citizens League (TSCL), an advocacy group, which is trying to change the way COLA is calculated. While TSCL supports legislation that could modestly increase COLA, you won’t want to wait for Congress to ensure that you can maintain buying power in retirement.
Buying (and holding) stocks in the best companies in the world is the best way to hedge for inflation. The best companies in the world will hire the best employees in the world, and together they will figure out how to find efficiencies and raise prices which will provide you with positive returns and an increasing long-term share price, regardless of inflation.
An allocation to 50-70% stocks should be plenty to keep your portfolio growing, which will grow your account balances over the long term and allow you to increase your monthly distributions. With this kind of diversified portfolio, you’ll be able to use your cash and bonds to weather the storms and ride out bumpy markets.
How are you planning to combat inflation in your retirement plan?
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The end of the year is coming up right around the corner, and you know what that means: it’s time for end-of-the-year tax planning! However, this year’s tax planning may look a bit different with new tax legislation making its way down the congressional pipeline. Many wealthy individuals are nervous about what the current regime has in store for them. This is why when I saw the headline Tax Moves Advisors Should Be Making Before Year's End in Financial Advisor Magazine I knew I had to share it with my audience. If the news of the tax legislation has you worried, you won’t want to miss this episode.
Keeping up with all the changes in tax legislation over the past few years can be exhausting. It seems like once in a generation tax law changes happen every couple of years.
One of the most troubling things about new tax legislation is wondering when it will take effect. Will the new law come into play at the end of the year, or will the changes be retroactive? While this can cause a bit of worry there is no sense in speculating. There is only so much that you can do to prepare.
While we have no idea what the future might hold, we can still have the presence of mind to plan ahead. One way to combat a hefty tax bill next year is to accelerate your income now.
For instance, if companies typically give bonuses at the beginning of the next year, they could pay those bonuses out in December instead.
Another way to realize more income sooner rather than later is to close any business sales before the end of the year to lock those earnings in under the current tax law.
If you are nearing retirement and you know your income will drop once you retire, you should be in deduction mode. Take advantage of HSAs and 401Ks rather than Roth IRAs to reduce your income and maximize your contributions between now and the end of the year
If your income decreases once you retire then you can start Roth conversions to mitigate the tax deductions you took when you had a higher income.
If you file the standard deduction, don’t miss out on the charitable deduction of $300 for singles and $600 for married couples.
If you are able to itemize your deductions and you are charitably minded, consider funding future years' charitable contributions through a donor-advised fund (DAF). If you have highly appreciated stock then you could use it to contribute to charity while also realizing a valuable tax deduction.
Another way to finish out the year is to anticipate your year’s earnings so that you can fill up your tax bracket with Roth conversions. This is a great way to take advantage of the historically low tax rates.
Worrying about future changes won’t help at all, instead, do what you can to take advantage of this year’s low tax rates to prepare for an uncertain future.
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Do you wish that you could have a mulligan when it comes to taking your Social Security benefit? Once you file for Social Security, it seems like your decision is set in stone. But what if I told you that you have options to reverse your decision?
In this episode of Retirement Starts Today, we’ll explore an Investment News article written by one of my favorite Investment News contributors, Mary Beth Franklin. This article provides options for those who have remorse about the timing of their Social Security claim.
In the listener questions segment, we’ll discuss Jerry’s question about his health insurance premiums under the Affordable Care Act and how they are affected by the 8.5% rule.
This episode is jam-packed with helpful retirement information, so press play now to continue your retirement education.
Have you found yourself regretting the timing of your Social Security benefits claim? Maybe you wish that you had waited longer to receive a larger benefit or maybe your retirement timeline has changed based on the pandemic or other factors. If so, I have good news for you. There are 3 ways that you could reverse your decision.
There are many people that wish they could go back and change the timing of their Social Security claim, so if you are one of them make sure to listen to this episode to learn which choice might best fit your needs.
You may not realize this, but you can withdraw your Social Security benefits application. Use form 521 to do so, but keep in mind that there’s a catch.
You’ll have to repay any earnings you or your dependents have received. Withdrawing your application can only be done once, but doing so will allow you to apply again later when your monthly check would be higher.
You’ll also want to consider whether you are already enrolled in Medicare. If you withdraw your application, your Medicare premiums will no longer be automatically deducted from your Social Security benefit, so you’ll have to find another way to pay.
If repaying your Social Security benefits isn’t feasible, then you might want to consider suspending your benefits. This way you don’t have to repay anything, however, keep in mind that not only will your benefits stop, but also this action will stop any benefits to a dependent family member. Your benefits would then start again at age 70. Listen in to discover why this may be a good strategy for married couples.
Requesting a lump sum payout works only for individuals who have reached full retirement age. They can request a lump-sum payout of up to 6 months of retroactive benefits. This option would best be used by someone who has an urgent need for cash or for people who waited until after their full retirement age to claim either spousal or survivor benefits. After receiving a lump-sum payment, that person could then voluntarily suspend benefits and earn delayed retirement credits up to age 70 which would boost future monthly benefits.
Claiming Social Security seems like such a permanent decision so if life comes along and changes your plans it’s good to know that you have these alternatives to consider.
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Do you wish that there was a list of what to do and what not to do in your retirement? I recently discovered an article from MorningStar.com written by Sheryl Rowling titled 8 Financial Do's and Don'ts for the 7-Figure Retirement, and I thought it would be perfect to share with my listeners. You'll learn several tips that you should consider when planning your retirement.
After we analyze the article’s do’s and don’ts, we’ll turn to Debbie’s question about taking Social Security early in order to protect beneficiaries.
Don’t retire too early. Retiring too early can be detrimental to both your psyche and your savings. If you have to retire early or sooner than expected, make sure that you retire to something rather than away from something. Creating a purpose in retirement can ensure that you don’t get bored. Boredom is a four-letter word in retirement.
For every year that you retire early, you have one less year of savings and one more year of spending. Do the math to learn what that could mean for your portfolio.
Do watch your taxable income level. This may sound odd, but it often makes sense to pay more taxes now in order to pay significantly less later. Retirement is one time in your life when you have control over the taxes you pay. Implementing careful tax planning strategies can save you over the course of your retirement.
Don’t take Social Security too early or too late. When to take Social Security is a complex question, and the answers vary depending on the individual. It’s usually best to wait until full retirement age to start taking benefits and it’s often even better to delay until age 70 especially if you’re married. Listen in to hear what I usually recommend to my clients.
Do consider Roth conversions. If you have the opportunity to convert your IRA to a Roth you should even though you must pay tax on the amount converted. Remember that since these are after-tax dollars, the income they provide is never taxed.
Do consider retirement stages and safe withdrawal rates when determining your budget. Spending more in the early years of retirement makes sense as long as you consider several factors. You’ll need to ensure that you have a safety net in place and that you have a plan to reduce your spending over time or whenever the market becomes uncooperative.
Don’t lock yourself into financial commitments or expensive payments. Long-term expenses like leasing a luxury car can lock you into financial commitments that you can’t free yourself from. Becoming the Bank of Mom and Dad can not only ruin your kids’ chances of financial independence, but it can also ruin your relationship and your own financial security in retirement.
Don’t write checks to charity. Instead of writing checks to charity, consider contributing appreciated stocks. This way of charitable giving can save you more in taxes. One way to utilize this strategy is by creating a donor-advised fund (DAF) which could be likened to a charitable IRA.
Do consult a financial professional. Obviously, I agree with this tip. Consider consulting a CPA as well as a financial advisor so that you can ensure that you are considering every angle in your retirement plan.
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