Retirement Income Toolbox

September 15, 2016

Social Security is one of the “three” legs of the three-legged stool approach that financial planners used to describe retirement (The legs being Social Security, Personal Savings and employee pensions).  By observation most of us can see that approach is certainly transitioning into a slightly different model in today’s world.  Most of the actively working adults today no longer have a pension plan available to them as employers move towards 401(k) plans which require workers to defer a portion of their own paycheck (Which may or may not have some type of employer matching portion).  A good portion of current retirees rely on Social Security as one of these legs (And those planning to retire in the next year or two possibly are relying on S.S. benefits as well).

Currently inflation is creeping along at a rate of .8% as of July 2016 compared to 4.1% in 2007 (Investment News Aug 2016). This could mean that retirees won’t be receiving a COLA (Cost Of Living Adjustment) for the 2017 year.  The Social Security Act bases their increases to recipients on an increase in inflation measured by the CPI (Consume Price Index) which as of July has had 0.0% increase (no change) compared to the month of June.  As the year progresses if this trend continues the likelihood of a COLA increase is greatly reduced.

Today Seniors’ expenses have increased approximately 75% due to people living longer, higher prescription drug costs and various other factors.  The COLAs have only increased these same individuals benefits around 36% since 2000.  This leaves a gap of 38% of unpaid expenses that are left to be covered by the retirees in one way or another (Investment News Aug 2016).

With Medicare premiums likely to go up in the very near future and a low likelihood of a COLA adjustment to Social Security 2017 might be grounds for some extra planning for current retirees on a tight budget.  If you haven’t recently asked your Financial Advisor about Long Term Care cost planning this might be a good first step for you.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual
The economic forecasts may not develop as predicted.