Jim Niedelman:
It is time again for 4 Your Money. We’re joined by Nate Kreinbrink, financial advisor for NelsonCorp Wealth Management. Great to talk with you, Nate.
Nate Kreinbrink:
Thanks for having me again, Jim.
Jim Niedelman:
We talked a lot this year about the impact this pandemic is having on the financial markets, income, and taxes. Now, another impact it could have is on retirees, specifically. What can you share about that?
Nate Kreinbrink:
I think from a financial perspective, I think you could say that retirees in general have been somewhat insulated from the recent events as opposed to those from other demographics. Now, granted, their portfolios took a little bit of a hit earlier on in this year, but for the most part, they’ve largely recovered up until this point. Whereas those still in the workplace had furloughs, layoffs, maybe even lost their jobs, retirees weren’t necessarily impacted by this. And I think we have a chart that does go over how some of these events will impact retirees, and this has to do with Social Security benefits and the cost of living adjustment that is attached to these benefits.
Nate Kreinbrink:
This chart that we’re looking at is going back to the year 2000 and showing the yearly annual increase, or lack thereof, to those Social Security benefits due to these costs of living adjustments. In 2020, the cost of living adjustment for the Social Security benefits was 1.6%. Now, it hasn’t been officially released yet, but due to multiple reports, it’s due to come in at or around 1.3% for 2021. Now, there is this decrease, and it’s due to some of these events that we’ve had over the last couple of months, so I think it’s important to look at this chart. And some of the things that it does show us is if you look at the Social Security cost of living adjustment benefit prior to 2010 and compare those to the cost of living adjustments after 2010, there’s roughly about a whole percent decrease in benefits over the last 10 years, as opposed to those from 2000 up into 2010. So I think this is important to keep in mind as we look at what those Social Security benefits may be going forward.
Jim Niedelman:
Now, if these increases to Social Security are supposed to be tied to inflation, shouldn’t these small increases still maintain purchasing power?
Nate Kreinbrink:
Although these are somewhat of a measure of inflation, I think it’s important to keep in mind what it is that is actually being measured. Now, as a general rule of thumb, retirees spend more in their retirement on medical costs and housing and less in transportation and food than those in younger, possibly other demographics. And with this low inflation that we’ve had due to the recent events, due to a collapse in energy prices, that low inflation isn’t necessarily correlating to what it is that retirees are actually spending their money on, and hence, what it is that the money is that’s in their pocket.
Jim Niedelman:
What does this all mean for retirees’ financial plans overall?
Nate Kreinbrink:
I think if you have done any type of planning, whether on your own or with a financial advisor, I think it’s important to really understand what assumptions were being made. If we look at the cost of living adjustment for Social Security and take an average historically, that may not be realistically what we’re going to experience moving forward. And one of these specific areas has to do with Medicare and the increase in Medicare premiums and how it’s tied to your Social Security benefits. So with the increases in Medicare premiums and these lower cost of living adjustment benefits that we’ve seen over the last 10 years and may potentially be a realistic reality going forward, it may potentially mean that we need to either downgrade some of those assumptions that are being made in those plans that were being made and actually account for possibly a lower Social Security benefit than what we had actually planned for.
Jim Niedelman:
Nate Kreinbrink. Thanks for your insight. Appreciate your time.
Nate Kreinbrink:
Thanks again, Jim.
Jim Niedelman:
If you missed any of this discussion, we have that available for you online at OurQuadCities.com.