Jim Neidelman:
Time now for this week’s edition of 4 Your Money. We’re joined by Nate Kreinbrink, financial advisor for NelsonCorp Wealth Management. Great to see you, Nate.
Nate Kreinbrink:
Thanks again for having me, Jim.
Jim Neidelman:
So let’s revisit the issue of inflation. We’ve talked about that quite a bit this year, and most of those conversations revolve around the risks associated with inflation, the price increases, and always has that negative connotation. What about potential bright spots related to inflation? Are there any?
Nate Kreinbrink:
Sure, there are two sides to most things and while prices going up may be painful in some areas, it does help in certain other situations. In particular, any type of income source that is indexed to inflation should see a boost this year, with the most common and probably the largest asset that most people have that falls into this camp being their social security benefit. Now every year, the Social Security Administration calculates a cost of living adjustment to benefits that will impact the amount that recipients get each month. This calculation is based on the consumer price index for urban wage earnings and clerical workers.
Nate Kreinbrink:
Now I think we have a chart that shows the historical cost of living increases that social security participants have received. Now I was on the show mid last year and kind of showed this same chart. And back then we were talking about the impact of the pandemic, and how it was going to be one of the smaller increases that we had seen in the past 20 years or so, with it coming in at 1.3% for 2021. Now this year, however, the economy rebounding and the consumer price index increasing, it is looking like retirees are set to see one of the largest increase of the past 20 years. So if the current CPI measures hold steady, social security recipients should see roughly about a 4.7% increase to their monthly benefit next year.
Jim Neidelman:
Now let’s take those cost of living adjustments into consideration for a moment. How does social security compared to let’s say other sources of income in retirement?
Nate Kreinbrink:
So social security is one of the best inflation adjustment sources of income that there is. Now there are other things, such as some pensions, a few annuities that offer annual increases, but they’re not always directly linked to inflation. One of the biggest issues is that inflation is a really hard thing to predict and an even harder thing to kind of hedge against. Companies can’t really provide an attractive inflation adjustment linked products if they are unable to manage that risk. So given that social security also has some features that provide a little bit of a tax advantage, it really is something that you should give a lot of thought to when considering inflation in your financial planning process.
Jim Neidelman:
So Nate, what type of advice do you have for people watching at home when it comes to them thinking about their social security benefits?
Nate Kreinbrink:
So I think the most important thing to understand is that there are a lot of options that you have with social security that can determine how big your benefit is, such as when you retire, when you start taking your benefit, what is your spouse’s social security benefit, which all of these things should be weighted carefully. Now another thing I would point out for people that is if you have already started taking your benefit, but you do see the value in terms of inflation protection or just seeking a larger benefit, there still could be some things that you can do to increase your benefit.
Nate Kreinbrink:
So if you filed for your benefit within the past 12 months, you can actually withdraw your claim, pay back all the benefits that you’ve already received, and then reapply for benefits down the road when your monthly amount would be larger. However, if you’ve been drawing benefits for longer than 12 months, or you don’t want to pay back everything that you’ve already received, you can wait until your full retirement age, which is determined by the year that you were born, and then suspend your benefit at that time. With this option, during the suspension of your benefit, your benefit will actually receive a delayed retirement credit so that when you do restart it, it will be at a bigger amount.
Nate Kreinbrink:
Now it’s important that people are aware of all these options that are out there and that they have a big impact on your benefit through the decisions that you make. And even if you’ve already started taking your benefits, there still may be some things that you may want to look at.
Jim Neidelman:
Important things to consider for sure. Nate Kreinbrink with NelsonCorp Wealth Management. Great to hear from you as always, Nate.
Nate Kreinbrink:
Thanks again. Have a good one.
Jim Neidelman:
Absolutely. In case you missed any of this discussion, we have it for you online at ourquadcities.com.