• Social Security Benefits Set to Increase in 2024

    Proper financial planning includes forecasting future Social Security benefits

    In a welcome development for millions of Americans relying on Social Security, the Social Security Administration has recently announced an increase in retirement and disability benefits. Starting in January 2024, recipients will see a meaningful boost, with benefits set to rise by 3.2%, translating to an average increase of more than $50 a month.

    This cost-of-living adjustment (COLA) marks a helpful step in ensuring financial stability for retirees and individuals with disabilities, impacting over 71 million Social Security beneficiaries across the nation.

    Historic Increases

    This COLA increase of 3.2% follows a historic 8.7% surge for 2023 and a 5.9% rise in 2022. These significant adjustments are a testament to the government’s commitment to addressing the rising cost of living, especially for those who depend on Social Security benefits as a primary source of income.

    Impact on Recipients

    For the average recipient, the 3.2% increase means more than just additional dollars in their monthly budget. It signifies improved financial security, providing a cushion against inflation and ensuring that essential needs are met with less strain. This extra income can contribute to covering healthcare expenses, purchasing necessities, and even indulging in a few luxuries, hopefully enhancing the overall quality of life for retirees and disabled individuals.

    Importance of Social Security Forecasting

    Understanding and forecasting Social Security benefits are vital components of financial planning. As demonstrated by the recent COLA adjustments, these benefits are subject to change, and staying informed about these fluctuations is essential for effective financial planning.

    Retirement Planning: For those approaching retirement, accurately estimating Social Security benefits can help plan for additional income streams and bridge the gap between retirement savings and living expenses.

    Budgeting: Knowing the exact amount of the monthly benefit allows individuals to budget effectively, ensuring that essential expenses are covered without relying solely on these funds.

    Long-term Financial Security: Forecasting Social Security benefits aids in long-term financial planning, enabling individuals to make informed decisions about investments, healthcare costs, and potential legacy planning.

    Disability and Survivor Benefits: For those receiving disability benefits, understanding the potential adjustments in benefits can help plan for healthcare and support services, ensuring a higher quality of life despite the challenges faced.

    The Elephant in the Room

    Relying solely on Social Security as a primary source of income during retirement, however, is a very risky proposition, and any good financial advisor will caution against this for several reasons.

    Firstly, the future of Social Security benefits is uncertain. While the government has taken steps to address immediate concerns, the program is projected to face financial challenges due to the aging population and a declining worker-to-beneficiary ratio. With a growing number of retirees drawing from the system and a shrinking workforce contributing, there are concerns about the long-term sustainability of Social Security in its current form.

    Secondly, Social Security benefits alone might not be sufficient to maintain the standard of living many individuals desire during retirement. The benefits are designed to replace only a portion of pre-retirement income, and for many people, especially those with higher incomes before retirement, this replacement rate might not be enough to cover essential living expenses, healthcare costs, and other financial obligations. Depending solely on these benefits could lead to financial hardship, forcing retirees to compromise on their lifestyle or struggle with unexpected expenses.

    Additionally, the cost of living adjustments made to Social Security benefits might not keep up with the actual rise in living expenses, particularly healthcare and housing costs, which tend to increase at a faster rate than the general inflation rate. This discrepancy can erode the purchasing power of Social Security benefits over time, making it challenging for retirees to keep up with rising costs.

    Planning Matters

    The increase in Social Security benefits by 3.2%, coupled with previous historic adjustments, is a significant stride towards supporting the financial well-being of retirees and disabled individuals. Proper financial planning, including forecasting Social Security benefits, empowers individuals to navigate their financial futures with confidence, ensuring a comfortable and secure retirement.

    However, while Social Security benefits can provide crucial support, they should be viewed as a supplemental income rather than the sole foundation of a retirement plan. Diversifying income sources, such as personal savings, investments, and employer-sponsored retirement accounts, is essential for building a robust financial cushion that can withstand the uncertainties of the future and ensure a comfortable retirement.

    Accordingly, as these benefits evolve, staying informed and seeking guidance from financial experts becomes paramount, allowing Americans to make the most out of their hard-earned benefits and enjoy their golden years with peace of mind.

    Copyright © 2023 FMeX. All rights reserved.
    Distributed by Financial Media Exchange.

  • Social Security for Divorced Individuals

    Written by Elaine Floyd, CFP®

    If there is one key differentiator between baby boomers and their parents, it is the higher incidence of divorce.

    Americans over 50 are twice as likely to be divorced compared to the same age group 20 years ago.

    If you have been divorced in the past and are currently unmarried, you may be able to qualify for Social Security benefits based on your ex-spouse’s work record. In order to qualify for a divorced-spouse benefit you must:

    • Be age 62 or older
    • Be finally divorced from the worker on whose record benefits are being claimed
    • Have been married for over 10 years
    • Be currently unmarried

    Your ex-spouse must be at least age 62. If the divorce occurred more than two years prior, your ex-spouse does not need to have filed for his or her own retirement benefit.

    Example: Michael and Maria were married over 10 years. They have been divorced over two years. Both are age 62. Maria has not remarried. Maria is eligible for a divorced-spouse benefit based on Michael’s work record, regardless of whether or not Michael has filed for his benefit.

    If you claim your divorced-spouse benefit at full retirement age or later (66 for those born before 1954, increasing gradually to 67), your benefit will be 50% of your ex-spouse’s primary insurance amount (PIA). The primary insurance amount is the amount your ex-spouse will receive if he claims his benefit at full retirement age.

    Example: Jim and Judy are divorced. Jim’s PIA is $2,400. Judy files for her divorced-spouse benefit at age 66. She will receive 50% of Jim’s PIA, or $1,200, as her divorced-spouse benefit.

    What if you also qualify for Social Security on your own work record?

    If you also worked and qualify for a Social Security benefit based on your own work record, you may be able to coordinate your divorced-spouse benefit with your own retirement benefit in order to maximize each type of benefit. But you must get the timing right.

    Don’t file at 62. If you file for Social Security at age 62, you may not be able to receive a divorced-spouse benefit. That’s because you will be required to take your own reduced benefit first. If your PIA is more than one-half of your ex-spouse’s PIA, you will not ever be able to receive a divorced-spouse benefit.

    Example: Sam and Sue are divorced after being married more than 10 years. Sam’s PIA is $2,400. Sue’s PIA is $2,200. If Sue files for Social Security at 62, she will be forced to receive her own reduced benefit of $1,650 (75% of $2,200). Since her PIA is more than one-half of Sam’s PIA, she will not ever be able to receive a divorced spouse benefit. The $1,650 will be her permanent benefit except for annual cost-of-living adjustments.

    File a restricted application at FRA. To receive a divorced-spouse benefit while your own benefit builds delayed credits – an ideal strategy for divorced people – you can file a restricted application for your divorced spouse benefit at full retirement age and switch to your own maximum retirement benefit at age 70.

    Example: If Sue, from the above example, waits until age 66 to file a restricted application for her divorced-spouse benefit, she can receive 50% of Sam’s PIA, or $1,200 from age 66 to 70. At age 70, she can switch to her own maximum retirement benefit of $2,904 ($2,200 x 1.32). This is Sue’s optimal Social Security claiming strategy, allowing her to maximize both benefits and giving her the highest lifetime benefits.

    Note: The Budget Act of 2015 is phasing out the ability to file a restricted application. You must have attained age 62 by January 1, 2016 to file a restricted application for spousal benefits. If you are not able to file a restricted application, you may still be eligible to receive a divorced-spouse benefit, but only if it is higher than your own benefit.

    Mechanics of filing

    To file for a divorced-spouse benefit, you need not be in contact with your ex-spouse. Your ex-spouse’s current marital status is not relevant. In fact, if your ex-spouse has remarried, the current spouse and any other ex-spouses can also receive benefits without affecting your divorced-spouse benefit. Or, if your ex-spouse has not remarried, he (or she) can claim a divorced-spouse benefit off your record. Unlike with spousal benefits, two divorced spouses can each claim a spousal benefit off the other’s record at the same time.

    If you are not in contact with your ex-spouse, it may be difficult to estimate the amount of your divorced-spouse benefit. Due to privacy issues, the Social Security Administration will not give out this information until you are ready to apply for the benefit.

    You can generally ballpark your ex-spouse’s PIA at somewhere between $2,000 and $2,600. Your divorced spouse benefit will be 50% of that amount if you file for it at your full retirement age.

    To file for your divorced-spouse benefit, you will need to make an appointment with your local Social Security office and show a certified copy of the divorce decree. It is helpful to have your ex-spouse’s Social Security number (you can get it off an old tax return), but not essential.

    If you do not have your divorce papers you can order a certified copy through VitalChek, www.vitalchek. com. If your marriage lasted right around ten years and you’re not sure if you meet the ten-year requirement, check the date on the divorce decree; some people are surprised to learn that the actual date of dissolution is later than they had thought.

    Ex-spouse deceased?

    If your ex-spouse has died, and if you were married at least ten years, you may qualify for a divorced-spouse survivor benefit. If you apply for it at your full retirement age or later, the benefit amount will be 100% of his PIA, or, if he had already started benefits, the amount your ex-spouse was receiving at the time of death.

    As with divorced-spouse benefits, you can sequence the timing of the survivor benefit and your own retirement benefit to maximize each benefit. For example, you could apply for a reduced divorced-spouse survivor benefit as early as age 60 (50 if disabled) and then switch to your own maximum retirement benefit at age 70. Or you might do it the other way: start your own reduced retirement benefit at age 62 and switch to your maximum survivor benefit at full retirement age. Your financial advisor can help you determine the optimal strategy.

    More than one ex-spouse?

    If you were married two (or three) times and each marriage lasted more than ten years, you can choose which ex-spouse’s record to draw from. In fact, you can sequence these benefits for maximum advantage, essentially taking advantage of several benefits, just not at the same time. It can get complicated. Your advisor and SSA can help you sort it all out.

    Think twice before remarrying

    Keep in mind that divorced-spouse benefits must stop upon remarriage. You cannot receive a divorced spouse benefit if you are married (one exception: the divorced-spouse benefit may continue if the person you marry is receiving survivor benefits at the time of the remarriage). But also consider the potential spousal benefit from your new spouse. If you are receiving a divorced-spouse benefit at the time of your remarriage, that benefit would stop but you may immediately start receiving a spousal benefit based on your new spouse’s earnings record without waiting the usual one year for spousal benefits.

    So here you might want to compare the two benefits and either remarry or remain single depending on which benefit is higher.

    If your ex-spouse is deceased, divorced-spouse survivor benefits would not be available to you if you remarry before age 60. Or, to put it another way, if you remarry after age 60, you may still receive a divorced-spouse survivor benefit based on the earnings record of your ex-spouse who has died.

    The bottom line: if you are eligible for divorced-spouse benefits or divorced-spouse survivor benefits and are thinking of remarrying, consider delaying the marriage. If your ex is still alive (and has a higher PIA than your new potential spouse), remarriage at age 70 will allow you to receive full divorced-spouse benefits from age 66 to 70, when you would switch to your own maximum retirement benefit. If your ex is deceased, you can remarry anytime after age 60 without jeopardizing your divorced-spouse survivor benefit.

    Talk to the Social Security Administration and to your financial advisor about the best claiming strategy for you based on your personal circumstances.

    Elaine Floyd, CFP®, is Director of Retirement and Life Planning for Horsesmouth, LLC, where she focuses on helping people understand the practical and technical aspects of retirement income planning.

    Copyright © 2023 by Horsesmouth, LLC. All rights reserved. IMPORTANT NOTICE This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

  • Social Security Gets Biggest Boost Since 1981

    The Cost of Living Adjustment, or COLA, from the Social Security Administration (SSA) is announced every fall and has major implications for the 66 million people who receive benefit checks. With inflation surging, retirees need help maintaining purchasing power. The agency announced its 2023 COLA will be 8.7%, the highest since 1981.

    For those concerned about medical costs eating into this increase, Medicare – the health insurance plan for older Americans – said last month it would drop its premiums next year by about 3% for its Medicare Park B Plan.

    For more information and context, please read this article from CBS News.

    For instructions on how to sign up for a “my Social Security” account with the SSA, which is the fastest way to find out when and how much you will receive, watch the video below: