The Senior Citizens League, an advocacy group for more than 1 million retired Americans, announced this week the annual cost-of-living adjustment for 2019 could go higher than 3 percent, an indication that economic times in America are in fact pretty good.
The increase could boost the average Social Security benefit of $1,400 by as much as $42 per month in 2019. For Americans retiring at full retirement age this year, their benefit could increase by more than $80 per month next year.
This is incredible news for retirees, and there is a very good chance they have NO IDEA what it means for them.
Spectrem does research about planning for retirement throughout the year, and the results of that research often show that investors have incorrect notions about how to maximize their Social Security benefits. That result is odd since so many retirees depend on Social Security to be the base of their retirement income, using investments to add to that amount to reach their financial goals for retirement.
Part of the confusion is that retirees can receive their full Social Security benefit at varying ages depending on what year they were born. The age for full Social Security benefits is between the 66th and 67th birthday.
But full Social Security benefits is not the same as maximum Social Security benefits. Every month an investor waits past their full Social Security date, they can get an additional bump to their payment when they finally start receiving benefits, up to the age of 70.
In our new study The Financial Literacy Gap Among Millionaires, we asked investors with a net worth of $1 million or more the age at which they receive maximum Social Security benefits, and 63 percent of investors got the correct answer. Twenty-two percent selected the age of 67, and 14 percent were either very incorrect in their response, or admitted they did not know (5 percent).
A study directly aimed at post-work finances – Financial Wellness in Retirement – showed that most investors expect Social Security to provide more than one-quarter of their monthly cash flow, topped only by pension allocations. That same study showed that 42 percent of retirees started taking their Social Security disbursements at their first possible moment, age 62, which could cost a retiree thousands of dollars over time, depending on how long they live.
(There are many legitimate reasons a retiree would start taking Social Security benefits immediately, including poor health, financial need, or concerns about the long-term governmental support of the program).
Financial Wellness in Retirement also showed that investors go to the Social Security website or do their own research before they speak to their financial advisor for assistance in determining the best path to take.
It is true there is no direct benefit to an advisor in explaining the benefit schedule of Social Security to their clients. But if an investor fully understands what is available to them through Social Security, they can make more informed decisions related to income-producing investments to bolster their retirement income, and that CAN benefit an advisor.
Social Security is complicated. For married couples who had different income levels and are retiring at different times, the incorrect decision can be very costly.
Advisors can and should go over the options available to each investor client, including those who are not yet near retirement age. If an advisor promotes themselves as offering financial planning, giving detailed consideration to Social Security disbursement intentions is one of the first “planning’’ steps to take.
Social Security may not seem like a vibrant topic for client-advisor meetings, but considering its value to investors, and its role in continuing conversations among political leaders, Social Security needs to be a major bullet point on any advisory discussion.
© 2018 Spectrem Group