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Social Security Cost of Living Increase in 2016?
Probably Not…Keep Planning and Know Your Options for Social Security Maximization
For nearly the past 40 years, Social Security has offered Americans a small “gift” in the form of a cost of living adjustment (except for two years). You may have heard some discussion that this coming year could mark a third year of the absence of this adjustment. Although this is unknown, we should prepare for stagnant benefits and look at how that affects your social security maximization.
Why does this happen? Ironically, because of the inflation rate being declared “low.” The cost of living adjustment is largely connected to the nation’s rate of inflation, and experts also explore the cost of living increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. However, what the adjustment amounts to for some households is a little over $20 more per month, according to last year’s numbers. Not highly significant, yet still pointing to a message that is significant: counting on Social Security benefits as a retirement source of income may not be a successful strategy.
Instead, investors are encouraged to consider Social Security as a federal savings account and to consider delaying tapping into that account, past the typical age. If you start drawing benefits at age 62, you will receive a significantly reduced portion of what you could be receiving each month you wait until you’re 70.
To get a better idea of how much more you could get if you do so, let’s look at an example. If a person waits to claim their benefits until age 66 would get $1,000 a month if they waited, what happens if they start receiving benefits earlier? If they decided to start taking that money at age 62, they’d get 75 percent, or $750. The amount will grow based on a formula for each year you postpone from age 62.
At age 63, that person would pull down 80 percent, or $800 a month. At age 64, the amount goes up to 87 percent, or $870. At 65 you’re at 93 percent, or $930. For every year you wait past full retirement age, the amount per month increases by around eight percent every year. If our fictional person who gets $1,000 per month at full retirement age waits until age 70 to pull benefits from Social Security, the monthly benefit goes up to $1,320 per month. (Now that’s more significant than the absence of a cost of living adjustment.)
Couples Need to Plan Wisely
You might be eyeing the higher-earning spouse’s Social Security benefits early because it appears that you’ll get more money per month by drawing those benefits, but don’t make this mistake. The surviving spouse will get less in this scenario when one spouse passes away. Waiting until the higher earning spouse is at least 66 before drawing Social Security benefits can be a smarter option.
Singles Need to Plan Wisely Also
If working into your mid to late 60s sounds appealing to you, it will also benefit you in retirement. Working later and delaying benefits until later will also give you a higher monthly benefit. This is a strategy that can work especially well for women, as they tend to live longer.
Seek Investment Advice
Everyone’s situation is different, which is why your retirement plans deserve a look from a professional investment advisor. Our commission-free team at Family Investment Center has assisted people in every stage of life, including using tools to look at Social Security maximization scenarios. Contact us today and let’s begin planning your future.