Social Security – Retirement Risk Advisors

inflation and interest rates on your retirement overview

11May

Retirement Planning: The Impact of Inflation and Interest Rates

BlogMay 11, 2023

Retirement planning is so much more than putting your money into a 401(k). With so few people spending the time they need on sitting down and planning their retirement, each day brings a new challenge or concern to the table. We are facing unprecedented times when it comes to traditional retirement plans. Retirements are being robbed because of financial risks that cause retirees to run out of money before they run out of retirement. And one of the biggest challenges is planning for inflation and interest rates. Inflation refers to the increase in prices of goods and services over time, while interest rates are the cost of borrowing money or the return on lending money. These two factors are closely related, and they can have a significant impact on retirement planning.

Inflation and Retirement Planning

Inflation is a key factor that can affect retirement planning. As prices of goods and services rise over time, the value of money decreases. This means that the amount of money you save today may not be enough to cover your expenses in the future. For example, if you save $100,000 today and expect to retire in 30 years, assuming an inflation rate of 2%, the purchasing power of that $100,000 would be equivalent to approximately $54,000 in today’s dollars.

To account for inflation, it is important to adjust your retirement savings goals to ensure that you will have enough money to cover your expenses in the future. This means that you may need to save more money than you initially planned. One strategy to combat inflation is to invest in assets that tend to increase in value over time, such as stocks or real estate.

Interest Rates and Retirement Planning

Interest rates are another important factor to consider when planning for retirement. Higher interest rates generally mean that your savings will grow faster, while lower interest rates can make it more difficult to reach your retirement savings goals. For example, if you invest $10,000 today in a savings account with a 1% interest rate, in 30 years, your investment would grow to approximately $13,400. However, if the interest rate was 3%, your investment would grow to approximately $24,000.

In addition to savings accounts, interest rates can also impact other types of retirement investments, such as bonds or annuities. In a low interest rate environment, these investments may not provide enough return to keep up with inflation. Therefore, it is important to consider the current interest rate environment when selecting investments for your retirement portfolio.

The Relationship Between Inflation and Interest Rates

Inflation and interest rates are closely related, and changes in one can impact the other. As mentioned earlier, inflation tends to lead to higher interest rates. This is because lenders need to charge a higher interest rate to compensate for the loss of value of the money they are lending. Conversely, if inflation is low, interest rates may also be low, as lenders do not need to charge as much to compensate for inflation.

When planning for retirement, it is important to consider the relationship between inflation and interest rates. If you are investing in assets that are sensitive to interest rates, such as bonds, you may need to adjust your investment strategy if interest rates rise or fall. Additionally, you may need to adjust your retirement savings goals if inflation is higher than expected.

Fear of RUnning out of money in retirement

18Apr

When Rest & Relaxation in Retirement Becomes Fear of Running Out of Money

BlogApril 18, 2023

Retirement is supposed to be a time of rejuvenation and relaxation, but for many retirees, financial stress can quickly turn it into a time of worry and struggle. One of the biggest concerns for retirees is running out of money. Unfortunately, it is a major issue, and it can happen for a variety of reasons.
The following are some common reasons retirees run out of money in retirement:

Insufficient Savings: One of the primary reasons retirees run out of money in retirement is due to insufficient savings. Many people don’t start saving early enough, don’t save enough, or don’t have a good understanding of how much they will need in retirement. As a result, they may end up with a retirement fund that is too small to last their entire retirement period.
Increased Life Expectancy: People are living longer than ever before, which means retirement savings must last longer too. Unfortunately, many people do not plan for an extended retirement period, and their savings run out before they pass away. This can be particularly challenging if they require long-term care, which can be very expensive.
Inflation: Inflation is a fact of life, and it can significantly impact retirees’ ability to maintain their standard of living. Many retirees are on fixed incomes and may not be able to keep up with the rising costs of goods and services. This can lead to a situation where they need to dip into their retirement savings to cover their living expenses.
Health Care Costs: As we age, health care costs tend to increase. These costs can be particularly challenging for retirees, especially those without health insurance. According to some estimates, a couple retiring in 2020 will need about $295,000 to cover their health care costs during retirement.
Poor Investment Choices: Investing is an essential part of retirement planning. Unfortunately, some retirees make poor investment choices or do not understand how to manage their investments effectively. This can lead to a situation where their retirement savings do not perform as well as they had hoped, and they run out of money sooner than expected.
Debt: Debt can be a significant problem for retirees. Those who carry debt into retirement may find that they need to use their retirement savings to pay it off. This can quickly deplete their savings and leave them without a financial cushion.
Running out of money in retirement is a widespread problem that can happen for many reasons. However, with careful planning and thoughtful decisions, retirees can reduce or even eliminate this problem. While there are many strategies that folks can take, the most important step is to plan properly and consider the risks facing your retirement.

30Mar

Not To Scare, but with Age Comes Long-Term Care

BlogMarch 30, 2023

As people are living longer, the need for long-term care in retirement is becoming increasingly important. Long-term care refers to the assistance that individuals may require with activities of daily living, such as bathing, dressing, and eating. In this article, we will explore the increasing need for long-term care in retirement and what individuals can do to prepare for this potential expense.

Why the Need for Long-Term Care is Increasing

The need for long-term care in retirement is increasing for several reasons:

Longer life expectancy: As people live longer, the likelihood of requiring long-term care increases.
Age-related health issues: As individuals age, they may experience a range of health issues that can impact their ability to perform activities of daily living.
Rising healthcare costs: Healthcare costs continue to rise, and long-term care expenses can be particularly expensive.
Changes in family structure: Changes in family structure, such as a decrease in the number of family members available to provide care, can make long-term care an increasingly important consideration.

The Costs of Long-Term Care

Long-term care can be expensive, and it is important to understand the potential costs associated with this type of care. The cost of long-term care can vary depending on several factors, including the type of care required, the geographic location, and the length of care required. According to a recent survey by Genworth, the national median cost of long-term care ranges from $4,576 per month for a home health aide to $8,821 per month for a private room in a nursing home.

Preparing for Long-Term Care

There are several steps that individuals can take to prepare for the potential need for long-term care in retirement:

Long-term care insurance: Long-term care insurance can help to cover the costs of long-term care, and can be a good option for individuals looking to protect their retirement savings from potential long-term care expenses.
Health savings accounts (HSAs): HSAs can be used to save for future healthcare expenses, including long-term care.
Lifestyle modifications: Making healthy lifestyle choices can help to reduce the risk of age-related health issues that may require long-term care.
Retirement planning: Including the potential costs of long-term care in retirement planning can help to ensure that individuals are financially prepared for this potential expense.

The need for long-term care in retirement is increasing, and it is important for individuals to understand the potential costs associated with this type of care. By taking steps to prepare for long-term care, such as purchasing long-term care insurance, utilizing health savings accounts, and including the potential costs of long-term care in retirement planning, individuals can help to ensure that they are financially prepared for this potential expense.

Withdrawal Rate Risk in retirement: methods and strategies that could impact your retirement

14Feb

How Your Withdrawal Rate Could Cause You to Run Out of Money Faster: Strategies to Know

BlogFebruary 14, 2023

Knowing how to withdraw your money from your retirement accounts doesn’t translate directly to sitting to one fixed method the entire time. Every CPA’s retirement is unique and what will work for one may not work for another. Some key factors that contribute to your withdrawal rate are:

Retirement Age
Predictable Income
Retirement Portfolio
Retirement Needs & Lifestyle
Other Risk Tolerance

Determine Your Investment Mix

Considering all the factors, the next step is to evaluate your investment portfolio. Do your investments support your long-term goals? Are they diversified enough to help reduce other risks you may face like inflation, longevity, or market downturn? The important thing to have in your retirement assets is the potential for growth while still withdrawing.

Strategy: 4% Rule

A fixed rate may be that perfect strategy for some retirees. Systematic withdrawals offer control for a specific period, but many people don’t consider these factors with the 4% rule:

Low interest rates make traditionally income-producing investments generate less income than expected
Inflation erodes the buying and spending power over time so you may need to withdraw larger amounts down the road
If the principal value of your investment is to decrease you will have less of your portfolio to withdraw from
Your income needs may become inconsistent due to increasing health care or medical costs. Thus, increasing the need for more money later in retirement

If you need a set amount withdrawn for a specific length of time, this method is perfect. Say you plan to work part-time for the first 5-10 years of retirement or are killing time until your Social Security benefits kick in.

Strategy: Buckets of Investment

Buckets help diversify your assets and provide different streams of income for you. One bucket may hold cash such as your emergency fund or another could hold fixed-income investments and protect principal. The last would hold the most growth for a longer period.

This strategy requires you work with an advisor to determine proper allocation and that your investments are protected and fit your long-term retirement goals.

Strategy: Interest-Only Income

Depending on your retirement accounts, you may be able to only pull from the interest earned without drawing on the principal balance. However, specific assets may unfortunately have penalties if you withdraw on interest only until a certain age.

This method does offer flexibility of switching from income stream to income stream yearly. This is another strategy that can be good for those transitioning from working full-time to part-time then to full retirement or those waiting for other income streams to kick in.

Important: Required Minimum Distributions

Federal tax rules deem you must begin taking required minimum distributions (RMDs) from tax-deferred retirement accounts such as 403(b)s or 401(k)s by April 1^st after you turn the Stated Age. Same with your IRAs. Your Stated Age is as determined: age 71 if born 1950 or earlier; 73 if born 1951-1959; and 75 if born 1960 or later. Failure to take your RMD on time could result in a 25% penalty.

Other things to consider with RMDs:

The set amount you must take depends on your age, life expectancy, and year-end account balance
For multiple accounts, each RMD needs calculated separately but you can withdraw the total amount from just one account
Roth IRAs and other non-qualified employee-sponsors plans do not require RMDs
You cannot rollover RMDs into other tax-advantaged accounts
If you are still working at your Stated Age, you may be able to defer RMD withdrawal from your 401(k) or 403(b). However, the same does not apply to IRAs.

Having a withdrawal strategy in place for your retirement is important to ensure your funds last as long as you do and to also help reduce other risks you may encounter during retirement (market risk, tax risk, inflation risk). The last thing you want is to outlive your money and die broke.

12Dec

Retirement Plan Contribution Limits Are Increasing Come 2023

BlogDecember 12, 2022

2023 is upon us and an important factor to tax-advantaged accounts and plans is the contribution limits the IRS sets. This year the contribution limits were increased more than they have been in the past due to historically high inflation and cost-of-living. Here is a general overview for 2023:

401(k) Plans

In 2023, for 401(k) plans the contribution limit has been increased to $22,500. This contribution limit applies to most 457 plans and 403(b)s.

For those over 50, the catch up contribution limit is increasing to $7500. So those over 50 in 2023 can contribute up to $30,000.

Defined Contribution Plans and SEPs

For these plans, the contribution limit is increasing by $5000 from 2022’s limit: $66,000.

SIMPLE Plans

Increasing just over a $1000, these plans can contribute $15,500. The catch-up for those over 50 has been increased to $3500.

IRAs

While the over 50 catch-up limit is not being changed for IRAs, the annual contribution limit is being raised to $6500.

Social Security Benefit increase for 2023

14Oct

What the Social Security 2023 Increase Means for You Now and Later

BlogOctober 14, 2022

The Social Security Administration announced that there will be an 8.7% cost-of-living-adjustment (COLA) beginning January 2023. Overall, this means benefits will increase an average of $140 a month.

The COLA rate is determined by the consumer price index (CPI) which relies on the U.S. inflation rate. While many thought 2022 COLA increase (5.9%) was large, the 2023 increase of 8.7% is the largest since 1981. Here is a quick breakdown of how Social Security benefits will change: For the average Social Security recipient an extra $1752 will be seen yearly, increasing benefits on average from $1681 to $1827. The average couple receiving benefits will see a yearly increase of $2856.

However, this increase does not factor in taxes. The one who giveth will also taketh. Under current law, if you are a single taxpayer, you will be taxed 0% on your Social Security benefits if you have provisional income under $25,000. Your Social Security benefits can be taxed up to 50% if your provisional income is between $25,000-34,000; and up to 85% can be taxed if your provisional income is over $34,000.

For those married and filing jointly, provisional income less than $32,000 results in zero taxation on your Social Security benefits. Between $25,000-44,000 your benefits can be taxed up to 50%; and from provisional income over $44,000 up to 85% of your benefits can be taxed.

Today, the Social Security Administration reports that roughly half of Social Security beneficiaries pay taxes on their benefits. With the COLA increase of 8.7%, more could be paying taxes in 2023. And depending on which state you live in, you may be paying more tax at both the federal and state level when it comes to taxes on your Social Security benefits.

COLA increases are always giving long-term. Once you reach 62, the increases are automatically included into your benefits. Heedless of when you take them, the increases are cumulative meaning the next COLA increase is determined off the new “base” Social Security benefits. This means even for spousal, survivor, or divorce benefits, you will still receive the COLA increases no matter when you enroll.

13Oct

2023 Means Savings on Medicare

BlogOctober 13, 2022

Medicare beneficiaries will pay lower Part B premiums for coverage come 2023. Those who are paying these premiums need to be aware of two major changes.

For this upcoming year, the premium for Part B will decrease by 3% to $164.90. The annual deductible will also decrease from $233 to $226 for 2023.

Sometimes people do not know they are paying their Part B premiums because when you elect to enroll in Medicare, your premiums come directly out of your Social Security benefits.

Moreover, since CMS regulates Medicare Part D, even though the prescription coverage is sold by private insurances, there is a good chance that many will see a general decrease in Part D premiums, too. Unfortunately, since the private insurers set the terms and limits of these policies, there is not set amount for the decrease like Part B has. CMS is predicted that an almost 2% decrease may happen for Part D. If there is a change to your plan, you will receive a statement in the mail notifying you. If you do not receive any statement, please call your insurance directly or check online.

Lastly, another major change CMS announced were changes to income brackets and rates for the premium surtax for Medicare. This surtax is known as income-related monthly adjustment amount (IRMAA). This is in addition for higher income beneficiaries to the Part B base premium of $164.90 everyone pays. This also is an addition to Part D premiums for higher income beneficiaries.

This surtax is imposed on modified adjusted gross incomes starting at $97,000 for a single person and $194,000 for married couples who file a joint return and maxes out at $500,000 of MAGI for a single person and $750,000 for a married couple fling a joint return. The maximum Part B premium if you hit the top income limits would be $560.50. For Part D the imposed surtax would be an additional maximum of $76.40. It is important to note that the highest bracket ($500,000/$750,000) discussed here is not adjusted for inflation, but the lower brackets are. So over time, more and more people will be moved into the top bracket and will pay the higher Medicare Part B premiums due to inflation.

21Sep

How to Cover Long-Term Care Expenses

BlogSeptember 21, 2022

Does planning for long-term care seem sensible for your retirement?

The answer: Many will not plan for an LTC until it is too late.

Where do you start?

Paying for Long-Term Care in Retirement

Each option has advantages and risks and knowing these will let you determine what your best plan of action is.

From Retirement Assets:

Without any coverage you will pay for LTC out-of-pocket. For most retirees, this is not the best option. If you are married, there is a good chance you and your spouse will both need long-term care. Essentially doubling your cost in LTC, you may consider shared care if you are married to save on costs.

Traditional Long-Term Care Insurance

This option is all-or-nothing. You either use the benefits or you do no end up using it. However, if you do not use the LTC insurance policy, your family/heirs do not typically see a death benefit payout. As a specialized insurance, you pay to have the insurance company cover out-of-pocket costs for long-term care. With the need for long-term care increasing, over the years policy holders have seen increases in premiums.

Life Insurance Policy with Chronic Care Rider

Life insurance can provide an upgrade. As part of your policy, many life insurance companies offer a rider that will help pay for long-term care. In the case you should need long-term care, your life insurance will pay out a fourth of the death benefit from your policy up to four years. Should you not use all the death benefit for your long-term care, your heirs will receive whatever remains after you pass.

These riders can also apply to permanent life insurance policies that will allow a portion of the policy to be invested; a portion that will grow and may be tax-free upon withdrawal.

Deferred-Income Annuities

While used more as a stream of income, deferred-income annuities may be used as monthly payments to offset the cost of long-term care. In some cases, you may be able to purchase a deferred-income annuity with long-term care coverage or a long-term care rider.

01Jun

Why Retirees are Targeted Most by Scammers

BlogJune 1, 2022

Annually, an estimated 3.5 million retirees fall victim to financial exploitation. Scammers take advantage of elders due their vulnerability. Those who are 80+ are the most at-risk group for scammers. Ruthless and always on top of trends and the latest news, scammers will try to pull a fast one via the phone, targeted emails, or even through websites.

Why are seniors targeted more than any other age group?

Money, Money, Money

With decades of saving and planning, elders are more particularly targeted due to being the wealthier, more established society members. Also, more likely to have own their homes outright, elder Americans have approximately 1.7 times the wealth than the working middle class due to their savings.

Loneliness Leads to Vulnerability

Retirees are usually empty nesters, and oftentimes loneliness leads to isolation as family grows and friends get older, too. This makes the perfect breeding ground for con artists to build a relationship with elders especially telephone scammers. Elders are always happy to get a call and are more than willing to listen to their narratives. Once the scammer can gain the retirees trust they have an easier time exploiting.

Cognitive Issues

Unfortunately, with aging comes cognitive decline. Even though seniors are reporting scams more often than younger folks, they have a harder time remembering the little details necessary. What makes matters worse is that seniors do not realize that they were scammed until sometimes weeks after the fact. Memory loss presents first with haziness, and short-term memory is the first to experience issues.

Other Health Issues Make Easy Targets

Easy for health scams, seniors are more likely to have other health issues such as cancer, autoimmune diseases, and limited mobility. The health scams will target retirees with fake remedies for these issues since they are seen as personal.

Retirement Staples

As the baselines to retirement, Medicare and Social Security are very important to seniors to maintain their health and finances. If a call or email comes through for these programs talking about issues elders are very prone to panic. The panic-inducing targeting gets retirees to act out of fear for losing their benefits or insurance. Retirees are more likely to share their information to scammers when something that important is threatened.

07May

Quick Check: How Ready for Retirement are You?

Podcast BlogMay 7, 2022

Retirement readiness is not an overnight success story. It is not a simple formula either. It takes dedication, hard work, and good strategies. Why? Because it is simply not just retirement savings. Below is a quick check to assess your readiness for your golden years whether you are 5-10 or even a year away from retirement!

Financial Wellbeing

As the biggest stressor of retirement, financial wellbeing is budgeting, savings, income streams, and planning. Here are some categories to review for your retirement planning

Housing, including utilities and maintenance
Healthcare costs (covered later)
Daily living: food, transportation
Entertainment and travel

Having an idea of where you stand now will help determine how much you should have for retirement assets.

Emergency Fund

Planning for the unexpected helps immensely when it comes to retirement readiness. When there is financial uncertainty, the emergency fund is the perfect security blanket. Advised to be kept separate from normal savings, the emergency fund should have roughly 3-6 months of living costs.

Debt Elimination

The less debt you need to pay in retirement, the better off you will be. Retires are often relying on fixed income streams, so beginning a repayment strategy now while you are still working would be ideal. If you can, paying down debts with higher interest rates would save a lot of money for you down the road.

Retirement Needs
As a CPA, knowing what you need and how you want to life your retirement helps set realistic goals and plans. This should include where you want to reside, what age you plan to retire, and even length of retirement. With longevity increasing by the day, it is estimated that retirement will last between 20-40 years for many. While evaluating your needs, this is a great time to also compose a timeline for when certain benefits/income streams begin.

Healthcare & Insurance

Health insurance is a major factor for retirement, and unfortunately will be the biggest expense you will face in retirement. Not including long-term care, a newly retired couple will need a minimum of $300,000 for medical expenses alone. This number is predicted to increase yearly, too. Moreover, should you have a long-term care event, without coverage, you are looking at approximately another $140,000 annually.

Now part of health care costs is insurance. Medicare only covers so much, and that depends on the plans you go with. Other than Part A each Part or supplemental plan has a premium. You may need prescription drug coverage, which is where Part D of Medicare may help. Consider a supplemental plan under Part C. Do further research into what a private health insurance company may offer so you know what options you have and are able to get the best price for what you need. Long-term care insurance is another premium monthly, but it would help a lot should you need it. There are some options where you may add a rider to a life insurance policy to help cover the costs long-term care would entail.