Social Security Raises? Not so Much
Published on November 29, 2016
As reported in a story on cbsnews.com, many people are bound to be disappointed by the cost of living adjustment (COLA) on next year’s Social Security benefits. It is said that Social Security recipients and federal retirees numbering in the millions will only get a 0.3
percent increase in monthly benefits in 2017. That marks the fifth year in a row of what was termed “historically low raises.” Since 2008, the COLA has been above 2 percent only once (2011). It’s been zero three times, including last year.
The COLA is based on a government measure of consumer prices (the Consumer Price Index for Urban Wage Earners and Clerical Workers, a broad measure of consumer prices generated by the Bureau of Labor Statistics); if prices go up, benefits go up and if prices drop or stay flat (as we’ve seen with gas prices, for example), benefits stay the same.
This adjustment affects more than 70 million people (about 20 percent of the American population). That figure includes not only retirees but the disabled, spouses and children. The COLA also affects people who receive Supplemental Security Income (SSI), the disability program for the poor. According to the article, the average monthly Social Security payment is $1,238, so that miniscule increase? That comes out to less than $4 a month for those average check amounts.
Adding salt to that wound for older adults is that Medicare Part B premiums are expected to increase next year—probably higher than that COLA. These premiums are typically deducted from Social Security payments.
Two federal laws come into play here:
1 – The dollar increase in that Medicare Part B premium cannot exceed a beneficiary’s cost-of-living raise—which thereby protects the majority of Medicare recipients. However, that means the burden of that increase will fall on new enrollees and higher-income individuals.
2 – That’s because, according to another federal law, the Part B premium must raise enough money to cover 25 percent of expected spending on doctors’ services.
We’ve said it before – you cannot rely solely on Social Security
Of course, as a company in the retirement industry, we are always going to promote saving for retirement and we hope you are doing so! Whether through an employer-sponsored retirement plan or your IRA, putting just a little aside every month adds up over time, which is why it’s also smart to start saving as early as possible. Given the dire situation with Social Security benefits, it’s not looking hopeful for today’s younger workers to receive substantial payments upon their retirement.
Plus, with these miniscule-to-no cost-of-living adjustments, those Social Security checks don’t go very far today … and will cover even less in the future when it comes to living expenses (and medical expenses) in retirement, especially with Americans living so much longer than prior generations.
The antidote to the Social Security blues? Be sure to save, of course … and do so more aggressively by investing in alternative assets through a self-directed retirement plan. If you already are doing so outside of your existing plan, why not open a self-directed IRA (Traditional, Roth or SIMPLE), a self-directed SEP—even a self-directed health savings account—and build up your retirement wealth with what you already know and understand.
Are you investing in real estate? How about commodities like cocoa, sugar, or coffee? What about energy investments? The list goes on when it comes to the types of nontraditional investments you can include in a self-directed retirement plan, with the potential to build a more lucrative (and certainly more diverse) portfolio.
Leave the Social Security benefits for your fun money; get serious about your future through self-directed investing. Our Starter Kits have everything you need to get your new account open and our helpful professionals are available to answer your questions about the many options and benefits of self-direction as a retirement wealth-building strategy. Contact us at 888.857.8058 or Info@NextGenerationTrust.com or check out our free white papers for more information.