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Social Security benefits get a huge bump. But retirees need to do more to protect their savings




Besides the pressure of the pandemic, those living on low to moderate incomes have been particularly hard hit by the double blow of rising inflation and low interest rates.

Seniors found themselves paying more for the essentials, earning next to nothing on their savings and receiving a monthly Social Security check that only increased by an average of $ 20 in 2021.

This small increase was based on the growth of inflation from the third quarter of 2019 to the third quarter of 2020. It therefore did not take into account the peak of inflation induced by the pandemic that occurred this year.

As a result, the next 5.9% increase will help offset this shortfall, as the average Social Security retiree check will increase by $ 92 to about $ 1,657 per month.

But older people are unlikely to be whole again for several reasons.

For starters, inflation is not going to go away, so “the purchasing power of social security benefits may continue to erode until 2022,” said Mary Johnson, social security and insurance policy analyst -disease for the Senior Citizens League.
What else, rising Health insurance premiums – which are deducted from your Social Security check – will reduce the amount left over for other essentials, according to Retirement Research Center at Boston College.

Johnson notes that the Centers for Medicare and Medicaid Services have estimated that prescription drug plan premiums will increase by almost 5% in 2022. And the Part D threshold before reaching the catastrophic phase of coverage will increase by 7, 6%.

Taxes can also become a problem for some, because the family income threshold that determines whether any part of your Social Security benefits will be taxed is not adjusted for inflation. So, as your check grows, the risk that you will have to pay income taxes on a portion of it will also increase.

Modest income, modest net worth

Social Security benefits are a major source of income for the majority of retirees, according to the Social Security Administration. They represent at least half of the monthly income of 50% of married beneficiaries and 70% unique recipients.

For many of these retirees, the potential for earning income from elsewhere – such as savings, investments, and home equity – is modest. Seniors with an average family income of $ 29,000 per year, for example, have an average net wealth of $ 278,742, according to the Center for Retirement Research, which based its calculations on the Federal Reserve’s 2019 survey. on consumer finances. Those who earned just under $ 15,000 a year had an average net worth of $ 123,841.

In an email survey this summer, the Senior Citizens League asked retirees what financial changes they have made since the start of the pandemic. Of the more than 500 responses, 34% said they had used their emergency savings while 19% said they had requested food assistance (SNAP benefits) or visited a pantry. Another 19% said they had to dip more into their retirement savings than expected.

Playing too carefully comes at its own risk

As asset classes disappear, US stocks were a good place to be this year, after increasing 100% from the lows reached at the start of the pandemic.
But many retirees often rely more on safer investments that earn interest. Keeping money in cash and cash equivalents like CDs, money markets, and interest-bearing savings accounts has provided paltry growth this year, given that anemic interest rates have been far outstripped by inflation. This has eroded the purchasing power of many savers. Many bonds did not perform well either, with the S&P 500 Bond Index and most S&P US Treasury bond indices have traded lower since the start of the year.

Thus, for retirees, managing their savings for maximum return is particularly difficult these days.

Interest rates are unlikely to rise until 2023, according to the Federal Reserve’s own economic projections. And the roaring stock market could be on the verge of a correction sooner rather than later.

So what is a risk averse retiree with modest means to do?

How does inflation affect my standard of living?

William Nunn, a paid certified financial planner who founded Horizon Financial Planning in New Orleans, recommends that retired clients have at least six months of payment for their bills. in liquid.

Given the low interest rates, he prefers to put that money in savings accounts rather than CDs to avoid the penalty you might incur if you have to withdraw money from a CD before you. it does not come to an end. “It’s not worth the risk of losing the interest on the CD you earned to break it. And if you do, you might have to pay a fee as well,” Nunn said.

Beyond money for bills and other funds stashed in a cash account in an emergency, retirees who keep the rest of their savings in bonds and cash equivalents may take more risk than they do. do not realize it, said Johnson of the Senior Citizens League.

“Low interest rates are taking a heavy toll on pension plans. And retirees who invest in CDs and bonds aren’t getting the kind of return they need to grow their savings and last until retirement. This means that more people need to turn to stocks. and investments, such as real estate.

While this involves more risk and volatility, it can offer the best chance of beating inflation over time if you invest funds that you won’t need for five years or more.

While this is optimal, the goal is not for every dollar saved or invested to outperform inflation, but rather for your retirement savings as a whole to do so over time, Nunn said. “You should look at your portfolio in terms of total return.”




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