Tag Archives: Retirees

Business

This is the biggest regret most retirees have, survey shows

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If retirees could talk to their younger selves, they would tell them to save more for their golden years.

“We think about the regrets that most of our survey respondents had, it was that they did not start saving early enough,” Nate Miles, Allspring’s head of retirement, told Yahoo Finance Live about the company’s recent global investment survey of 2,758 adults near and in retirement.

As a result, many of Allspring’s respondents are considering semi-retirement.

“About 25% of them have resigned to either working later and retiring at a later date and/or just expecting less in retirement,” Miles said.

But that’s not always a viable option, according to the survey results. One of 4 early retirees had an unexpected early retirement due to job loss and health issues.

( Photo Credit: Getty Creative)

Instead, workers should focus on saving, Miles said.

He recommends workers save at least 10% of their income for retirement. Workers can even make up for lost time, if they started saving for retirement later in their careers. It just means consistently socking away more.

“One of the things that concerned us about the survey actually was that people that didn’t start saving until after 40 were only saving 50% of the time at about a 10% rate,” Miles said. “Even when people are saving later, they’re not actually making up for those 10 or 20 years in terms of that delayed start date.”

Employers also can play a role in helping workers meet their retirement goals through auto-enrollment plans. That’s when workers are automatically enrolled in their company’s 401(k) when they start. Some employers also offer automatic increases of contributions every year.

( Photo Credit: Getty Creative)

Studies have found that employers with auto-enrollment retirement plans have much higher rates of participation among their employees.

“For the majority of participants, they either lack the engagement or financial literacy to make often times the best decision for them. So things like auto-enrollment and auto-escalation will help resolve some of those issues on their behalf,” Mile said. “And we’re seeing more and more plans add that. With the recent passing of SECURE 2.0, we expect that even more participants in employer-sponsored plans will do that.”

Auto-enrollment could also help women, who are more apprehensive about reaching their retirement goals, Miles said. The Allspring survey found that 69% of women are confident about their savings lasting through retirement compared with 87% of men.

“Generally, women are less confident in retirement and generally more anxious. Part of that is they oftentimes are not in the workforce for the entirety of their career, and so they’re not benefiting from that time in savings,” Miles said. “This is one area where the [auto-enrollment plans] will really help, where we’re going to get more and more women in the workforce actually saving for retirement for longer.”

Ella Vincent is the personal finance reporter for Yahoo Finance. Follow her on Twitter @bookgirlchicago

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Business

Retirees feeling the impact as Social Security checks fell short last year: report

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Missouri Rep. Jason Smith reacts to Biden aides reportedly discovering a second batch of mishandled classified documents and Social Security possibly facing insolvency on ‘The Evening Edit.’

America’s senior citizens and retirement community might be feeling the additional financial strain in recent months as there was a big shortfall in their Social Security payments last year.

According to the nonpartisan Senior Citizens League, there was a sharp increase in the cost of living in 2022, and inflation-adjusted payments given to Social Security recipients decreased in that same year. This resulted in a 46% gap in the monthly benefit checks received by 70 million Americans.

The organization reported Social Security recipients received a 5.9% cost-of-living-adjustment (COLA) last January, which saw the average benefit check increase $92.30, from $1,564 in 2021 to $1,656.30 for 2022.

The league reported, however, that the 5.9% inflation adjustment was short of the actual inflation figure every month by 46% on average.

SOCIAL SECURITY CHECKS WITH RECORD-HIGH 2023 COST-OF-LIVING INCREASE SET TO ARRIVE THIS WEEK

FILE – Blank Social Security checks are run through a printer at the U.S. Treasury printing facility Feb. 11, 2005 in Philadelphia, Pennsylvania.  (William Thomas Cain/Getty Images / Getty Images)

This calculated discrepancy resulted in the average Social Security benefit check falling short by more than $42 per month and more than $508 for 2022, according to their report.

“While Social Security recipients are looking forward to an 8.7% increase in Social Security benefits in January, inflation in 2022 has taken a toll on retiree budgets,” the league said in a statement. “Many retirees have been forced to spend through savings far more quickly than planned and those without savings have turned to food pantries and low-income assistance programs in higher numbers.”

The inflation-adjusted rate was calculated using 2021’s figures, as measured by the Consumer Price Index.

The annual inflation rate for 2021 was 7%, but the adjustment for Social Security benefits is calculated based solely on the change in third-quarter reportings of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

REPUBLICANS SOUND ALARM ON SOCIAL SECURITY INSOLVENCY: TAXPAYERS ‘CLEARLY HAVE TO WORRY ABOUT’ RETIREMENT

The third quarter runs from July 1 through Sept. 30.

In the third quarter of 2021, CPI-W increased by 5.9%. That rate jumped by the end of the fourth quarter to 7.4%, leaving seniors short even before the start of 2022.

Going forward into 2023, these rates have adjusted again.

FILE – In this photo illustration, a Social Security card sits alongside checks from the U.S. Treasury on Oct. 14, 2021 in Washington, D.C.  (Kevin Dietsch/Getty Images / Getty Images)

As of January 2023, Social Security benefits have increased by 8.7% or about $140, increasing the average check to nearly $1,800.

This increase was again calculated through third-quarter inflation rates: Inflation was 7.1% by November, falling from its shockingly high 9.8% in June.

Federal agencies are forecasting that 2022 will end with an annual inflation rate between 7% and 8.01%.

IRS DELAYS NEW TAX-REPORTING RULE ON VENMO, PAYPAL PAYMENTS OVER $600

An elderly couple walk on a street in Alhambra, California on February 4, 2020.  (FREDERIC J. BROWN/AFP via Getty Images / Getty Images)

While senior citizens are looking forward to the increase in Social Security payments in 2023, many are still contending with 2022’s shortfall between their inflation and their Social Security payments.

READ MORE FROM FOX BUSINESS

The Senior Citizens League reported that 33% of the senior citizens apply for food stamps or visited a food pantry this year, compared with 22% last year, and that 17% applied for assistance with heating costs, compared with 10% last year, according to a recent study.

The Associated Press contributed to this report.

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Business

What to know as record 8.7% Social Security COLA goes into effect

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Kathrin Ziegler | Digitalvision | Getty Images

As inflation has kept prices high in 2022, Social Security beneficiaries may look forward to a record high cost-of-living adjustment in 2023.

“Your Social Security benefits will increase by 8.7% in 2023 because of a rise in cost of living,” the Social Security Administration states in the annual statements it is currently sending to beneficiaries.

The 8.7% increase will be the highest in 40 years. It is also a significant bump from the 5.9% cost-of-living increase beneficiaries saw in 2022.

The increase is “kind of a double-edged sword,” according to Jim Blair, a former Social Security administrator and co-founder and lead consultant at Premier Social Security Consulting, which educates consumer and financial advisors on the program’s benefits.

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“It’s good for people on Social Security,” Blair said. “It’s not so good for the economy with inflation.”

Social Security benefit checks will reflect the increase starting in January.

The average retiree benefit will go up by $146 per month, to $1,827 in 2023 from $1,681 in 2022, according to the Social Security Administration The average disability benefit will increase by $119 per month, to $1,483 in 2023 from $1,364 in 2022.

What’s more, standard Medicare Part B premiums will go down by about 3% next year to $164.90, a $5.20 decrease from 2022. Medicare Part B covers outpatient medical care including doctors’ visits.

Monthly Part B premium payments are often deducted directly from Social Security checks. Due to the lower 2023 premiums, beneficiaries are poised to see more of the 8.7% increase in their monthly Social Security checks.

“The good news about these letters is people are realizing 100% of the 8.7% lift,” said David Freitag, a financial planning consultant and Social Security expert at MassMutual.

“Of course, the economy is inflated at a frightful rate, but this represents the value of cost-of-living adjusted benefits from Social Security,” Freitag said.

Few other income streams in retirement offer cost-of-living adjustments, he noted.

What to look for in your Social Security statement

Justin Paget | Digitalvision | Getty Images

If you’re wondering how much more you stand to see in your checks, the personalized letter from the Social Security Administration will give you a breakdown of what to expect.

That includes your new 2023 monthly benefit amount before deductions.

It will also tell you your 2023 monthly deduction for premiums for Medicare Part B, as well as Medicare Part D, which covers prescription drugs.

The statement will also show your deduction for voluntary tax withholding.

The good news about these letters is people are realizing 100% of the 8.7% lift.

David Freitag

financial planning consultant and Social Security expert at MassMutual

After those deductions, the statement shows how much will be deposited into your bank account in January.

Of note, you do not necessarily have to be receiving Social Security checks now to benefit from the record 2023 increase, Blair noted.

“The good news is you don’t have to apply for benefits to receive the cost-of-living adjustment,” Blair said. “You just have to be age 62 or older.”

When you may pay Medicare premium surcharges

If your income is above a certain amount, you may pay a surcharge called an income related monthly adjustment amount, or IRMAA, on Medicare Parts B and D.

This year, that will be determined by your 2021 tax returns, including your adjusted gross income and tax-exempt interest income. Those two amounts are added together to get your modified adjusted gross income, or MAGI.

In 2023, those IRMAA premium rates kick in if your modified adjusted gross income is $97,000.01 or higher and you filed your tax return as single, head of household, qualifying widow or widower or married filing separately; or $194,000.01 or higher if you are married and filed jointly.

Notably, just one dollar over could put you in a higher bracket.

“It’s important for everyone to make sure that the amount of adjusted gross income that they’re using for the IRMAA surcharges agrees with what they filed on their tax return two years ago,” Freitag said.

If the information does not match, you “absolutely need to file an appeal,” he said.

Because the IRMAA surcharges can be extremely significant, that is an area to watch for errors, Freitag said.

When to appeal your Medicare surcharges

If your income has gone down since your 2021 tax return, you can appeal your IRMAA.

That goes if you have been affected by a life changing event and your modified adjusted gross income has moved down a bracket or below the lowest amounts in the table.

Qualifying life changing events, according to the Social Security Administration, include marriage; divorce or annulment; death of a spouse; you or your spouse reduced your work hours or stopped working altogether; you or your spouse lost income on from property due to a disaster; you or your spouse experienced cessation, termination or reorganization of an employer’s pension plan; or you or your spouse received a settlement from an employer or former employer due to bankruptcy, closure or reorganization.

To report that change, beneficiaries need to fill out Form SSA-44 with appropriate documentation.

How higher benefits could cost you

Andrew Bret Wallis | The Image Bank | Getty Images

As your Social Security income goes up with the 8.7% COLA, that may also push your into a different IRMAA or tax bracket, Freitag noted.

That calls for careful monitoring of your income, he said.

Keep in mind that two years in the future you may get exposed to IRMAA issues if you’re not careful.

In addition, more of your Social Security benefits may be subject to income taxes. Up to 85% of Social Security income may be taxed based on a unique formula that also factors in other income.

It is a good idea to have taxes withheld from Social Security benefits in order to avoid a tax liability when you file your income tax returns, according to Marc Kiner, a CPA and co-founder of Premier Social Security Consulting.

“Do it as soon as you can,” Kiner said of filling out the voluntary withholding request form.

To better gauge how IRMAA or taxes on benefits may affect you going forward, it may help to consult a tax advisor or CPA who can help identify tax-efficient strategies, Freitag said.

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Business

Social Security COLA will be 8.7% in 2023, highest increase in 40 years

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Azmanjaka | E+ | Getty Images

Amid record high inflation, Social Security beneficiaries will get an 8.7% increase to their benefits in 2023, the highest increase in 40 years.

The Social Security Administration announced the change on Thursday. It will result in a benefit increase of more than $140 more per month on average starting in January.

The average Social Security retiree benefit will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.

The Senior Citizens League, a non-partisan senior group, had estimated last month that the COLA could be 8.7% next year. 

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The confirmed 8.7% bump to benefits tops the 5.9% increase beneficiaries saw in 2022, which at the time was the highest in four decades.

The last time the cost-of-living adjustment was higher was in 1981, when the increase was 11.2%.

Next year’s record increase comes as beneficiaries have struggled with increasing prices this year.

“The COLAs really are about people treading water; they’re not increases in benefits,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare.

“They’re more trying to provide inflation protection so that people can maintain their standard of living,” Adcock said.

How much your Social Security check may be

Beneficiaries can expect to see the 2023 COLA in their benefit checks starting in January.

But starting in December, you may be able to see notices online from the Social Security Administration that state just how much your checks will be next year.

Two factors — Medicare Part B premiums and taxes — may influence the size of your benefit checks.

The standard Medicare Part B premium will be $5.20 lower next year — to $164.90, down from $170.10. Those payments are often deducted directly from Social Security benefit checks.

“That will mean that beneficiaries will be able to keep pretty much all or most of their COLA increase,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told CNBC.com this week.

That may vary if you have money withheld from your monthly checks for taxes.

To gauge just how much more money you may see next year, take your net Social Security benefit and add in your Medicare premium and multiply that by the 2023 COLA.

“That will give you a good idea what your raise will be,” said Joe Elsasser, an Omaha, Nebraska-based certified financial planner and founder and president of Covisum, a provider of Social Security claiming software.

How the COLA is tied to inflation

The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.

The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The Social Security Administration calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.

Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.

“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.

A similar pattern may happen if the economy goes into a recession, according to Johnson.

What the COLA means if you haven’t claimed benefits yet

If you decide to claim Social Security benefits, you will get access to the record-high COLA.

But you will also have access to it if you wait to start your benefit checks at a later date, according to Elsasser.

If you’re 62 now and don’t claim, your benefit is adjusted by every COLA until you do.

The amount of the COLA really should not influence claiming.

Joe Elsasser

CFP and president of Covisum

What’s more, delaying benefits can increase the size of your monthly checks. Experts generally recommend most people wait as long as possible, until age 70, due to the fact that benefits increase 8% per year from your full retirement age (typically 66 or 67) to 70. To be sure, whether that strategy is ideal may vary based on other factors, such as your personal health situation and marital status.

“The amount of the COLA really should not influence claiming,” Elsasser said. “It doesn’t hurt you or help you as far as when you claim, because you’re going to get it either way.”

How a record-high increase may impact Social Security’s funds

Social Security’s trust funds can pay full benefits through 2035, the Social Security Board of Trustees said in June.

At that time, the program will be able to pay 80% of benefits, the board projects.

Tetra Images | Tetra Images | Getty Images

The historic high COLA in 2023 could accelerate the depletion of the trust funds to at least one calendar year earlier, according to the Committee for a Responsible Federal Budget.

Higher wages may prompt workers to contribute more payroll taxes into the program, which may help offset that. In 2023, maximum taxable earnings will increase to $160,200, up from $147,000 this year.

What could happen to future benefit increases

While 2023 marks a record high COLA, beneficiaries should be prepared for future years where increases are not as high.

If inflation subsides, the size of COLAs will also go down.

Whether the CPI-W is the best measure for the annual increases is up for debate. Some tout the Consumer Price Index for the Elderly, or CPI-E, as a better measure for the costs seniors pay. Multiple Democratic congressional bills have called for changing the annual increases to that measure.

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Business

3 of the Safest Dividend Stocks Retirees Can Buy Right Now

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You probably don’t need the reminder, but it’s been a trying year for Wall Street and investors. Since each of the three major U.S. stock indexes hit their all-time highs between mid-November 2021 and the first week of January 2022, they’ve fallen as much as 22% to 34% from their respective peaks. In other words, they’re all officially in a bear market.

The unpredictability and velocity of downside moves that accompany bear markets can often make investors question whether they want to stick around. This can be especially hard for retirees who have less tolerance for risking their principal investments.

Image source: Getty Images.

But there’s good news for aged investors: Every bear market throughout history has proved to be a buying opportunity.

It’s also a fantastic time to put your money to work in dividend stocks. Since most income stocks are profitable and time-tested, there’s minimal worry about their survival during relatively short-lived bear markets. And it certainly doesn’t hurt that dividend stocks have a history of handily outperforming their peers that don’t offer payouts over long periods.

What follows are three of the safest dividend stocks retirees can buy right now to continue growing their wealth.

Johnson & Johnson: 2.8% yield

The first exceptionally safe income stock retirees can confidently buy amid bear market volatility is healthcare-giant Johnson & Johnson (JNJ -0.31%). In April, J&J, as Johnson & Johnson is more commonly known, increased its payout for a 60th consecutive year. Only a handful of publicly traded companies offer a longer streak of consecutive base annual-payout increases.

The great thing about healthcare stocks is their defensive nature. No matter how poorly the stock market or U.S. economy perform, there will always be demand for prescription drugs, medical devices, and healthcare services. This provides a steady and predictable level of cash flow for a healthcare behemoth like J&J.

On a more company-specific basis, Johnson & Johnson benefits from its operating segments perfectly complementing each other. For example, J&J has progressively generated more of its revenue from pharmaceuticals over the years.

Brand-name drugs can generate juicy margins but have finite periods of sales exclusivity. To counter these eventual patent losses, J&J can lean on its leading medical-device segment, which is perfectly positioned to take advantage of an aging global population and improved access to preventative care.

If you need one more reason to trust J&J, consider this: It’s one of only two publicly traded stocks listed on a major U.S. exchange to have a AAA credit rating from Standard & Poor’s (S&P), a division of S&P Global. That’s a grade higher than the U.S. government’s AA rating. In short, S&P has more confidence Johnson & Johnson will make good on its debts than it does of the U.S. government doing the same.

Image source: Getty Images.

York Water: 2% yield

Another safe dividend stock retirees can add to their portfolios right now is little-known water utility York Water (YORW -3.67%). When I say “little-known,” I mean it. York services just 51 municipalities in three counties in South-Central Pennsylvania.

If you think healthcare stocks are defensive, turn it up a notch when talking about utility providers. If you own or rent a home, there’s a really good chance you need water and wastewater services. In addition, most utilities have monopolies or duopolies in the territories they serve, which leads to highly predictable cash flow since residents have few or no choices as to what company provides their service.

The best aspect of York Water’s operating model is that it’s a regulated utility, which means it needs permission from the Pennsylvania Public Utility Commission to increase rates on its customers. While this might sound like a hassle, it’s actually great news because it ensures York avoids any uncertainties tied to pricing volatility. This predictability of cash flow allows the company to make acquisitions and set aside capital for infrastructure improvements without adversely affecting profits or its dividend.

Speaking of dividends, you might be pondering York’s 2% yield and wonder why it’s even on this list. The answer is simple: No publicly traded company has been paying a consecutive dividend for a longer period. According to the company, it’s been making consecutive dividend payments to its shareholders since James Madison was president in 1816. There isn’t a more rock-solid payout history than York Water.

Walgreens Boots Alliance: 5.9% yield

Pharmacy-chain Walgreens Boots Alliance (WBA -0.69%) is a third income stock retirees can comfortably buy right now. Walgreens has increased its base annual payout in each of the past 47 years and is working on 89 consecutive years of dividend payments. Its 5.9% yield is the high-water mark on this list. 

Though healthcare stocks are defensive, Walgreens found a bit of a loophole to this thesis during the COVID-19 pandemic. Since its stores are reliant on foot traffic, initial lockdowns hurt its business. But that’s in the rearview mirror now. With Walgreens decisively profitable and pushing forward with a multipoint turnaround plan, it makes for a genius buy at depressed levels.

While cost-cutting is part of the plan — Walgreens is a full year ahead of schedule in reducing its annual spending by more than $2 billion — what’s far more intriguing is where Walgreens is spending money. For instance, the company has placed an emphasis on building up its online sales. Even though its brick-and-mortar stores will remain its core source of sales, the convenience provided by online sales and drive-thru pickup should lift its organic growth rate.

Furthermore, Walgreens and VillageMD are working together to open as many as 1,000 co-located, full-service health clinics in Walgreens’ stores by the end of 2027. Being physician-staffed differentiates these clinics from the competition. Most importantly, it provides a catalyst to drive repeat visits and create loyal customers.

At a forward-year price-to-earnings ratio of less than 7, Walgreens Boots Alliance’s stock looks to have an incredibly safe floor to go along with its rock-solid payout.



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Business

High inflation points to bigger Social Security COLA in 2023

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Joe Raedle | Getty Images News | Getty Images

Social Security beneficiaries could see another record cost-of-living adjustment in 2023, based on the latest government data showing persistent high inflation.

But that increase may not be enough to pare the loss in buying power recipients have experienced over the years, according to a new analysis from The Senior Citizens League, a non-partisan advocacy group.

A popular inflation measure, the Consumer Price Index for All Urban Consumers, known as the CPI-U, was up 8.3% over the past 12 months, staying near 40-year highs, according to April data released on Wednesday.

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Meanwhile, the index the Social Security Administration uses to calculate cost-of-living adjustments each year, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, increased by 8.9% over the last 12 months.

That points to a cost-of-living adjustment of 8.6% for 2023, based on the April data, according to The Senior Citizens League.

That is down from the group’s 8.9% COLA estimate based on March CPI data. At that time, the CPI-W had increased 9.4% over the past year.

Social Security beneficiaries saw a 5.9% bump to their monthly checks in 2022, the highest increase in about 40 years.

To be sure, a bigger cost-of-living adjustment for 2023 is not guaranteed.

To calculate the COLA each year, the Social Security Administration compares CPI-W data from the third quarter to the third quarter of the prior year.

If inflation subsides, there is the possibility of a lower adjustment, or even no increase, for next year or in 2024.

Much of that will depend on how fast the Federal Reserve’s efforts to tamp down inflation by raising interest rates takes effect, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

“I think the action at the Fed is going to slow things down,” Johnson said.

One possibility is inflation may become deflation, where prices start going down very rapidly, she said.

However, even another record high cost-of-living adjustment may not be enough to stop the loss of buying power people who rely on those benefits have already seen over the years.

Social Security benefits have lost 40% of their buying power since the year 2000, according to a new analysis by The Senior Citizens League.

“People who have been retired the longest have really been impacted the most, because they’ve had a cumulative effect where their COLA hasn’t been keeping up,” Johnson said.

The sharpest drop in purchasing power ever recorded by the group occurred between March of last year and this March, when it dropped 10 percentage points.

Fastest-growing costs for older Americans from March 2021 to March 2022

Item Cost in March 2021 Cost in March 2022 % Increase
1. Home heating oil $2.86 $5.13 79%
2. Gasoline (gallon) $2.86 $4.33 51%
3. Used vehicles (numeric data) 153.873 208.216 35%
4. Propane gas (gallon) $2.30 $2.98 30%
5. Eggs (dozen) $1.63 $2.05 26%
6. Bacon (lb.) $5.85 $7.20 23%
7. Oranges (lb.) $1.27 $1.48 16.5%
8. Coffee (lb.) $4.67 $5.41 16%
9. Medicare Part B premium $148.50 $170.10 14.5%
10. Ground chuck (lb.) $4.31 $4.87 13%

Source: Senior Citizens League, based on Bureau of Labor Statistics data through March.

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Business

Social Security retirement age reaches 67. Some say it may go higher

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Many Americans eagerly look forward to a time when they can stop working and officially set their status to “retired.”

But when asked what age they anticipate that could be, there isn’t a consensus.

The average age when people say they hope to retire is 62, according to one survey.

That is also the age at which people can first claim Social Security retirement benefits, so long as they are eligible based on their work records.

However, people receive reduced benefits for claiming early. If they wait until full retirement age to claim — generally 66 or 67, depending on when they were born — they receive the full benefits which they have earned. If they wait until age 70, they stand to get an 8% per year benefit increase over their full retirement age.

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Meanwhile, the House of Representatives last week approved a retirement bill that would push out the age for required minimum distributions on certain savings accounts to 75, up from the current age of 72. That change, if it passes the Senate, would be gradually phased in by 2032.

The proposal reflects a reality that many people today are generally healthier than generations past and therefore are living and working longer, said Mark J. Warshawsky, a senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration.

“It should cascade to other official ages throughout the tax code and the government’s programs, Social Security included,” Warshawsky said.

To be sure, no imminent changes to the Social Security program are in the works.

“It has and will continue to be the third rail of politics because of the public sensitivity around the issue,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

That does not mean there is no urgency around the issue, however.

The trust funds that the Social Security Administration relies on to pay benefits are projected to become depleted in 2034. At that time, 78% of promised benefits will be payable, the government agency said last year.

To shore up the program, lawmakers have a choice of increasing taxes on benefits, raising payroll taxes or increasing the retirement age. Any enacted changes could include a combination of all three.

Of note, Social Security advocates are staunchly against tweaking the Social Security retirement ages.

“An increase in the full retirement age is just a benefit cut,” said Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.

How the retirement age could change

President Ronald Reagan signs the Social Security Act Amendment into law on April 20, 1983.

Corbis | Getty Images

Retirement ages were last altered in 1983 under then-President Ronald Reagan.

Those changes, which raised the full retirement age to 67 from 65, are still being phased in today.

Even just the bump up to age 66 from 65 represented a 5% benefit cut, Elsasser noted.

Many experts expect that any future changes could push up the Social Security retirement age. Notably, the Social Security 2100 Act: A Sacred Trust, introduced by Rep. John Larson, D-Conn., last year, would leave those thresholds unchanged and, in some respects, make benefits more generous. But the legislation has a five-year timeframe.

Separately, the Social Security Administration has scored the financial effects other proposals to change the age thresholds could have on the program.

Just in 20 years, we’ve seen a substantial increase in the retirement age.

Mark J. Warshawsky

senior fellow at the American Enterprise Institute

“I expect that at some point in the not too distant future, Congress will agree on a Social Security package that includes some type of adjustment to the retirement age,” Akabas said. “Whether that’s in two years or 10 years, it’s very difficult to predict.”

Experts say it’s possible the full retirement age could get pushed up by a year or two, which could be gradually phased in.

Additionally, lawmakers could also raise the initial age for eligibility for retirement benefits from 62, as well as the highest age for delaying benefits and earning benefit increases from 70.

Adjustments could make it so the most vulnerable — those who are forced to retire at the earliest possible age — don’t see the same type of benefit reduction, Akabas noted.

How to plan for future benefits

Geber86 | Vetta | Getty Images

In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, it’s around 66, according to government data, Warshawsky said.

“Just in 20 years, we’ve seen a substantial increase in the retirement age,” Warshawsky said. “People really, really are working longer.”

Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.

That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.

If you’re 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.

But if you’re 45 to 60 years old, it’s reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.

Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.

“The real importance of planning is just making sure you have all your bases covered,” Elsasser said.

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A lasting market downturn can be big risk early in your retirement

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For investors whose retirement is decades away, the stock market’s pullback should be of little concern — there’s plenty of time for your portfolio to recover before you need the money.

Yet if you are a new retiree or on the verge of retiring, it’s worth considering what a prolonged dip would mean for your portfolio over the long-term.

Basically, down markets can pose significant “sequence of returns” risk in the early years of retirement. That risk basically is about how the order, or sequence, of stock returns over time — combined with your portfolio withdrawals — can impact your balance down the road.

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“If there’s a downturn early on, it can derail a whole retirement plan,” said Wade Pfau, a professor of retirement income at the American College of Financial Services.

The major indexes have had a rough week. Through Thursday’s close, the S&P 500 index has shed 3.9%, the Dow Jones industrial average is off roughly 3.4% and the Nasdaq composite index has slid 4.9%. Year to date, the S&P has lost 5.9%, and the Dow and Nasdaq have dropped 4.4% and 9.5%, respectively.

Generally, down markets can present a buying opportunity for investors because they’re purchasing stock at a lower price than they would have otherwise.

However, it also means that if you sell, you’re doing so at depressed prices. And for retirees especially, that can be problematic.

“If there’s a big loss in the market and you’re taking withdrawals, you could be taking more from your portfolio than what it can make up for,” said certified financial planner Avani Ramnani, managing director at Francis Financial in New York.

“If that happens early in retirement … the recovery may be very weak and put you in danger of not recovering at all or being lower than where you would have been and therefore jeopardizing your retirement lifestyle,” Ramnani said.

Here’s how a sequence of returns risk can impact your savings: Say a person had retired at the turn of the century with $1 million invested in the S&P and withdrew $40,000 each year, with withdrawals after the first year adjusted 2% for inflation.

In 2020, the remaining balance would have been about $470,000, according to Ben Carlson, director of institutional asset management for Ritholtz Wealth Management, who crunched the numbers for a blog post.

In the above scenario, the portfolio would have been subject to a bear market at the outset of the person’s retirement, when the S&P lost 37% over three years during 2000-2002, but enjoyed a long-running bull market that began in 2009.

It’s not the specific returns over time but the order of those returns that matter.

Wade Pfau

Professor of retirement income at the American College of Financial Services

However, if the order of yearly returns were flipped — the gains posted by the S&P at the end of the 20 years happened first and that early bear market happened last — that same person would have more than $2.3 million after withdrawing the $40,000 or inflation-adjusted amount each year.

“It’s not the specific returns over time but the order of those returns that matter,” Pfau said.

How to combat the risk

The good news is that there are options for mitigating the risk.

The first is to simply plan to spend more conservatively, Pfau said. In other words, the less you spend consistently, the less you have to withdraw overall.

Another strategy is to adjust your spending when your portfolio performance is suffering. 

“You look at your expenses and see if there are any you can stop,” Ramnani said. “So maybe you don’t take a trip, or you delay doing a large renovation that would require a big distribution.”

You also can actively reduce risk in your portfolio, Pfau said. For instance, you could have a low stock allocation early in retirement but increase it over time, or use bonds for short-term expenses and stocks for long-term ones.

“You’re strategically reducing volatility,” Pfau said.

The last option is to have assets outside your investment portfolio that can support your spending needs when stocks are underperforming.

“You would use that as a temporary resource while you wait for your portfolio to recover,” Pfau said. 

He said that buffer could be cash, a reverse mortgage line of credit or permanent life insurance with a cash value, assuming it’s protected from market losses.

Additionally, given how well the market has generally performed over the last decade, you may simply be able to meet your goals without taking on the risk that comes with stocks.

“You could take some of that volatility off the table,” Pfau said.

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Retirees are ‘unretiring’ — and that’s good for the labor market

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Retirees are coming out of retirement, and that’s a good sign for the labor market.

Early retirements among older Americans were among the many labor distortions related to the Covid-19 pandemic, according to economists, as health risks and other factors led many to leave their jobs.

But there’s an open question: Are these retirements permanent, or will these workers rejoin the labor force?

The answer could have big implications for the U.S. economy and even the finances of everyday Americans, at a time when overall labor force participation has remained stubbornly low.

The number of retirees re-entering the job market is picking up, according to Nick Bunker, economic research director for North America at job site Indeed.

That’s largely a positive thing — most pandemic-era retirements seem to have been for “bad” reasons (forced retirements amid a health crisis) rather than “good” ones (like inflated nest eggs), he said.

“[The trend] suggests there’s a group of people out there who want work and are increasingly finding it,” Bunker said.  

Bunker analyzed data from the Current Population Survey (a household survey from the U.S. Census Bureau and U.S. Bureau of Labor Statistics used to piece together part of the monthly jobs report) to determine the so-called unretirement rate.

(Of the people who’d reported being retired in 2020, this rate measures the percentage who said they were employed 12 months later.)

In October 2021, the unretirement rate was 2.6%, above the 2.5% rate for September and 2.4% in August, Bunker found.

This is a noticeable pickup in “unretirement” relative to other periods during the pandemic, he said. The rate had cratered to 2.1% by June 2020.

The current rate is still a bit below its pre-pandemic trend around 2.5%-3%, Bunker said. (These rates don’t apply to a specific age group, but it’s safe to assume most retirees are older, he said.)

‘Bouncing back’

But even seemingly small upward shifts in that rate can have a meaningful impact since it applies across a huge swath of people, according to Aaron Sojourner, a labor economist and associate professor at the University of Minnesota.

“We can see there’s some reversal occurring now,” Sojourner said. “We seem to be bouncing back a little bit.”

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About 3.6 million more Americans were out of the labor force and didn’t want a job in October 2021 relative to October 2019; of those, 3.3 million, or 91%, were older Americans age 55 and older, according to an analysis Sojourner conducted of federal data. That hints at the magnitude of early retirements, he said.

Whether these retirements are durable or temporary is largely a function of how people want to use their time, Sojourner said.

Covid vaccination rates are climbing; restraints on childcare seem to be easing, relieving grandparents of care responsibilities they may have shouldered for working parents; job prospects are improving and wages are rising.

Amid that backdrop, would people in their 50s, 60s and beyond rather spend their time in or out of the labor force?

“If they’re enticed back into the labor market — by improving public health and jobs — that’s good,” Sojourner said. “It means they have better options.

“The inside-the-labor-market option got better than the outside-the-labor-market option.”

Of course, finances may also be a concern for those who feel they need to draw a paycheck to make ends meet.

Sidelined workers

Whether workers are enticed back to the labor market or not is an important consideration for the U.S. economy.

While overall job growth has been accelerating, millions of workers remain on the sidelines. Employers have raised wages (especially in certain sectors like restaurants) to attract job interest and have also somewhat raised prices, Sojourner said.

Bringing more workers into the job market and boosting labor supply may help ease any wage and price pressures, he said, and lessen the likelihood of the Federal Reserve stepping in to slow down the economy and rein in consumer demand.

Of course, early retirements aren’t the only factor that may be contributing to a lower-than-anticipated labor supply.

Perhaps largest among them: The pandemic is ongoing. There were 84,000 average new Covid cases a day as of Monday, an increase from the recent 64,000 low on Oct. 24. And Covid-related deaths, while on the decline and which occur overwhelmingly among the unvaccinated, still average more than 1,000 a day.



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Tool shows how changes could affect you

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A Social Security Administration office in San Francisco.

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It’s no secret the funds Social Security uses to pay benefits are running low.

New proposals on Capitol Hill aim to fix the program’s solvency.

Just how dramatic those changes will need to be depends on how soon changes are put through.

Likewise, people who are planning for their retirement now may also want to make adjustments based on unforeseen events that could pop up down the line.

That includes any potential cuts to Social Security retirement benefits.

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“When you’re looking at all these ‘what ifs,’ the adjustments you make now in order to plan for something later are much smaller,” said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.

To that end, Covisum has developed a calculator to help both consumers and financial advisors gauge just how impactful any Social Security benefit cuts could be to their bottom line in retirement.

To be sure, benefit cuts are not a given.

One year ago on Thursday, the Social Security Administration released projections indicating its trust funds could become depleted in 2035, at which point 79% of promised benefits would be payable.

An official update is expected to be released soon with the agency’s annual trustees report. Meanwhile, other projections have already speculated that the expiration date could be sooner due to economic after effects of the Covid-19 pandemic.

To fix that shortfall, experts generally expect some changes. Benefit cuts are among the possibilities, as well as potential payroll tax increases, or a combination of both.

In 1983, when President Ronald Reagan ushered in the last major Social Security reform to fix the program’s then ailing finances, that included gradually raising the retirement age to 67 and imposing some taxes on benefits for the first time.

The key for anyone who is looking toward claiming Social Security retirement benefits now is not to base the decision on worries of what changes could be coming.

“The temptation may be to act on fear,” Elsasser said. “It’s rarely the best track for financial planning.”

“Having a realistic understanding of the impact, even in a bad case, is better than going in with your eyes closed,” he said.

Covisum’s new calculator helps advisors evaluate Social Security claiming decisions. For many people, that is the cornerstone of their retirement plan, Elsasser said.

The calculator can stress test clients’ plans against benefit cuts and other negative scenarios such as poor market performance or negative health situations to see if their plan would still be ok.

“If it is, then you don’t have to act on fear,” Elsasser said.

If it is not, then adjustments like reducing lifestyle expenses or working longer may be necessary.

There is also a free version of the calculator available to consumers.

That version requires four data points: year of birth, benefit amount at full retirement age, percentage of a hypothetical benefit cut and the year that cut occurs.

Then it compares results of a person’s lifespan in five-year increments based on how early they claim — from age 62 or as late as 70 — and how that would be impacted if benefit reductions are put in place or not.

Ultimately, the results can be a starting point for people to evaluate what the potential results could be, which will hopefully lead them to avoid claiming early — and therefore take reduced benefits for life — just because they are afraid of benefit cuts, Elsasser said.

Research indicates those cuts would likely be less than 25%, if they happen at all, he said.

Notably, the calculator does not factor in the idea that benefits could go to zero. Because current tax revenues still support the program, that’s a highly unlikely scenario, Elsasser said. Even younger generations should continue to see income from the program in the future.

“The likelihood of it going to zero is as close to zero as you can get,” Elsasser said.

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