Social Security Benefits to Increase in 2022
We’ve talked earlier in the year about some of the fiscal changes that the current administration plans to make in 2022, and how inflation is affecting the large population of Baby Boomers who are retiring or approaching retirement. Now, we’re not saying that the US Government reads this blog, but they have made some recent changes that our past posts corroborate. The Social Security Administration announced that seniors will see their Social Security and Supplemental Security Income benefits increase by 5.9% in 2022 due to Cost of Living Adjustments. This increase in benefits is intended to offset inflation and the increased cost of living according to the Consumer Price Index.This is the largest increase in social security benefits since 1982. While inflation's effect on retirement has been discussed before, it’s usually in a much more negative light, so it’s interesting to see inflation resulting in more money for retired folks. That being said, let’s examine the role that Social Security benefits play in a retired person’s finances.
Social Security
Social Security is part of the retirement plan for most working Americans. Almost 9 out of 10 people over the age of 65 receive social security benefits as part of their income. Throughout your working life you pay Social Security tax, either 6.2% of your income with your employer matching that, or if you’re self-employed, you pay the full 12.4%. So, when it comes time for you to retire, you get those funds back in the form of benefits. You can technically file for Social Security benefits as early as 62 years old, but when you file affects the size of your payments. If you wait until you’re 65 years old, you can get up to 30% more benefits, and if you wait even longer, your payments can be higher, capping out at 70 years old. You’re also welcome to collect these benefits while you’re also working, if that’s what you’d prefer. Like most financial options, the best course of action really depends on your personal situation. Social Security benefits typically only cover 30-40% of a senior’s cost of living, generally speaking. Furthermore, the amount of people retiring will soon eclipse the number of working people paying into Social Security via their taxes, the Social Security trust fund is going to be drained to $0 by 2033 - which means that, unless Congress intervenes somehow, there will only be enough money collected via taxes to pay about 75% of the scheduled benefits. For these reasons it’s crucial to have multiple vehicles in place as part of your retirement plan.
Retirement Planning Basics
The first aspect of preparing a retirement plan is understanding your time horizon. When do you want to retire, and how much time does that give you to build your portfolio? Just like assessing your risk tolerance, the amount of time you have to prepare for retirement will greatly affect what accounts, investments, and actions you take today. Another factor in preparing a basic retirement plan is understanding your retirement spending needs in detail. Do you want to travel often in retirement? Do you see your retired self volunteering for a favorite organization? Do you want to contribute to your grandchildren’s education funds? What about your other day-to-day needs, including food and housing costs? Many people believe they will spend less in retirement than they did while they were working, but some advisors believe it's more accurate to proceed as if you will spend the same amount as you were prior to retirement. While crafting your budget and assessing how much you will need to retire comfortably, make sure you're considering the after-tax rate of return on your investments and retirement accounts. This ensures that you will have an accurate picture of what kinds of funds these vehicles will yield for you. On the topic of unsavory things like taxes, don't forget to incorporate estate planning into the big picture of your retirement. This also includes a succession plan for your company if you’re an entrepreneur or small business owner. Retirement planning can be overwhelming and intimidating, especially with shifting policy and changing tax laws. We’ve helped many families and individuals in Austin and Hill Country retire on their own terms with confidence. Whether you have questions about an IRA, 401(k), your portfolio, or are simply curious about when you will be able to retire down the line, our financial planning process can address all those questions and more. Reach out at info@nestfinancial.net to learn how we can optimize your retirement plan and help you manifest your financial goals. Find us on:LinkedIn Facebook Yelp TwitterDISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.