Social Security Cost of Living Adjustment for 2025 and other Social Security Tax Updates!

Contributed by: Kali Hassinger, CFP®, CSRIC™

It was recently announced that the 2025 Cost of Living Adjustment for those receiving Social Security will be 2.5%. This amount reflects a steady decline from the 8.7% increase received in 2023 and the 3.2% received in 2024. The Cost of Living increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2023, through September 30th, 2024.

The Social Security taxable wage base will increase in 2025 from the current $168,600 to $176,100. This means employees will pay 6.2% of Social Security tax on the first $176,100 earned. That translates to $10,918 in tax paid for Social Security alone. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who earn over $250,000. This income level at which the surtax comes into play has remained unchanged since 2013. 

For those collecting Social Security, the taxable portion of their benefit can range from 0%, 50%, or 85% based on income:

• For those filing single: If taxable income is between $25,000 and $34,000, they may have to pay income tax on 50% of their benefits. If income is more than $34,000, up to 85% of their benefits may be taxable.

• For those filing a joint tax return: If combined income is between $32,000 and $44,000, they may have to pay income tax on up to 50% of their benefits. If joint income is more than $44,000, up to 85% of their benefits may be taxable.

Medicare premium and IRMAA (Income-Related Monthly Adjustment Amounts) updates are typically released later in the year, so keep an eye out for that update if you’re already collecting Social Security and enrolled in Medicare.

For many, Social Security is one of the only forms of guaranteed fixed income that will rise throughout retirement. The Senior Citizens League estimates, however, that Social Security benefits have lost approximately 33% of their buying power since the year 2000. This is why, when running retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our client’s financial plans. If you have questions about your Social Security benefit or Medicare premiums, we are always here to help!

Kali Hassinger, CFP®, CSRIC® is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Will Social Security Run Out in The Next 10 Years?

Contributed by: Kelsey Arvai, CFP®, MBA

Contributed by: Nick Errer and Ryan O'Neal

No, social security won't run out, at least not entirely. As a result of changes to Social Security enacted in 1983, benefits are expected to be payable in full until 2037. When these reserves are used up, continuing tax revenues are expected to pay 76% of scheduled benefits. What is causing the financial status of the Social Security Fund to shortfall? Americans have fewer children, live longer, and have an aging population of Baby Boomers retiring at a record pace, further lowering the workforce.

Many discussions have surfaced about how Congress will address the issue of an insolvent Social Security fund. Because we are currently in an election term, it is unlikely that any immediate action will be taken, but these are likely the eventual options on the table, barring any other creative solutions.  

Payroll Taxes may increase. The current Social Security tax rate is 12.4%. For most Americans who are W2 employees, this is split 50/50 between the employer and employee. An increase of 1% for both parties would bring the total rate up to 14.4% and substantially improve the program's state.  

Retirement age may have to go up. There have been no significant changes to the Social Security Program since the full retirement age was lifted from 65 to 67 in 1983. Since then, the average life expectancy in the United States has risen from 74.6 to 77.5 years old. A slight increase in the full retirement age represents how much longer people live today. Another increase would extend the fund substantially.

Benefits may get cut. Like any other struggling budget, there are two ways to fix it. One can either increase revenues or decrease spending. Rather than increasing revenue via payroll taxes to improve the state of the Social Security Fund, policymakers may decide to lower the maximum benefit individuals may receive. While this option would face scrutiny in the current high-price environment, it is certainly on the table.

In today's political environment, it is astute to structure your retirement portfolio to accommodate at least 30 years of retirement or longer. You can do this by creating a savings plan and choosing the right mix of investments (also known as a portfolio allocation). Individuals may rely on several fixed income sources besides Social Security in retirement, such as annuities, pensions, rental properties, or other recurring sources. Maintain at least one year of cash in a relatively safe, liquid account, such as an interest-bearing bank account or money market fund. Next, create a short-term reserve in your investment portfolio equivalent to two to four years' worth of living expenses, accounting for regular income sources or not, depending on how conservative you are. Invest the rest of your portfolio in investments that align with your goals and risk tolerance. The overarching goal here should be to hold a mix of stock, bond, and cash investments that can generate growth, provide income, and preserve your capital—balancing retirement income between social security and other income streams to create a more reliable financial future. Are you looking to implement a retirement income strategy? Reach out to us!

Sources:
https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html  
https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp  

Kelsey Arvai, MBA, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Social Security Cost of Living Adjustment for 2024 and other Fun Social Security Facts!

Contributed by: Kali Hassinger, CFP®, CSRIC™

It was recently announced that the 2024 Cost of Living Adjustment for those receiving Social Security will be 3.2%. This is a far cry from the 8.7% increase received for 2023, but inflation, although remaining a common topic of conversation, has slowed over the last twelve months. The Cost of Living increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2022, through September 30th, 2023.

The Social Security taxable wage base will increase in 2024 from $160,200 to $168,600. This means that employees will pay 6.2% of Social Security tax on the first $168,600 earned, which translates to $10,453 of Social Security tax. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who earn over $250,000. This income level at which the surtax comes into play has remained unchanged since 2013. 

For those collecting Social Security, the taxable portion of their benefit can range from 0%, 50%, or 85% based on income: 

• For those filing “individual” and their combined income is between $25,000-$34,000, they may have to pay income tax on 50% of their benefits, and if more than $34,000, up to 85% of their benefits may be taxable.

• For those filing a joint tax return whose combined income is between $32,000 and $44,000, they may have to pay income tax on up to 50% of their benefits, and if more than $44,000, up to 85% of their benefits may be taxable. 

For many, Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement. The Senior Citizens League estimates, however, that Social Security benefits have lost approximately 33% of their buying power since the year 2000. This is why, when working on running retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our client’s financial plans. If you have questions about your Social Security benefit or Medicare premiums, we are always here to help! 

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Widowed Too Soon

Contributed by: Sandra Adams, CFP®

When we hear the term widow or widower, we picture someone older – someone deep into their retirement years. The reality is, according to the U.S. Census Bureau, the average age of a widow or widower in the U.S. is currently 59-years-old. In my recent experience with clients, I have seen the statistics become reality. Clients becoming widowed well before their retirement years has, unfortunately, become increasingly common. The issues involved with this major, and often unexpected, life transition are not simple and are hard to go through alone.

If you are one that is left behind, there are several action steps that should be taken to get back on your feet and feel financially confident. In most cases, this is the woman (according to the U.S. Census Bureau, 32% of women over age 65 are widowed compared to 11% of men). There is no timetable for when these steps should be taken – everyone grieves in their own time and everyone is ready in their own time to move on and make sound financial decisions at different times. No one should be pushed into making financial decisions for their new normal until they are ready.

The first step is identifying sources of income. For young widows or widowers, you may still be working, but may have lost a source of income when your spouse passed away. Looking at where income might come from now and into the future is important. For young widows, life insurance is likely the source of the replacement for lost income. If you are closer to retirement, you may also have Veteran’s benefits, employer pension benefits, savings plans, home equity, income from investments, and Social Security.

The second step is to get your financial plan organized. Get all of your documents and statements put together and review your estate documents (update them, if needed). A big part of this is to update your expenses and budget. This may take some time, as your life without your spouse may not look exactly the same as it did with him/her. Determining what your new normal looks like and what it will cost may take some time to figure out. And it won’t be half the cost (even if you don’t have children), but it won’t be 100% or more either – it will likely be somewhere in between. Figuring out how much it costs you to live goes a long way toward knowing what you will need and how you will make it all work going forward. Your financial planner can be a huge help in this area.

The third step is to evaluate your insurances (health and long-term care). These costs can be significant as you get older, and it is important to make sure you have good coverage. For younger widows, those that are still working may have health insurance from their employer. If not, it is important to make sure you work with an agent to get counseling on the best coverage for you through the exchange until you are eligible for Medicare at age 65. And for long-term care, if you haven’t already worked with a financial planner to plan coverage and are now widowed – now is the time. Single folks are even more likely to need long-term care insurance than those with a partner.

The fourth step is to work on planning your future retirement income. Many widows don’t think enough about planning for their own financial future. What kinds of things should you be talking to your adviser about?

• Income needs going into retirement

• The things you would like to do in retirement/their retirement goals (travel/hobbies, etc.)

• What financial resources you have now (assets, income sources, etc.)

• Risk tolerance

• Charitable goals, family gifting goals, etc.

You can work with the adviser to design a tax-efficient retirement income plan to meet your goals with appropriate tools based on tax considerations and risk tolerances, etc.

And the fifth step is to evaluate housing options. We often tell new widows not to make big decisions, like changing homes, within the first year or two. However, many decide that they want or need to move because the house they are in is too big or they just need to make a move. Housing is roughly 40 – 45% of the average household budget – decisions need to be made with care.

For all widows, going it alone can be difficult with a lot of decisions and time spent alone. For many, it is going through the process of redesigning retirement all over again, now alone, when it was meant to be with your long-time partner. And learning to live a new normal and planning the next phase of life that looks entirely different than the one you had planned. With the help of a professional financial adviser, the financial side of things can be easier – the living part just takes time.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc., is not a registered broker/dealer and is independent of Raymond James Financial Services.

The information contained in this blog has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

How Much Does It Actually Take to Retire Early?

Contributed by: Josh Bitel, CFP®

Like most people, you have probably thought of the possibility of an early retirement, enjoying your remaining years doing whatever brings you joy and being financially independent. Whether you have your eyes set on traveling, lowering your golf score, spending more time with your family, or any other hobbies to take up your time, you may wonder… How much money does it actually take to retire at age 55?

If you have thought about retirement, you are likely familiar with the famous “4% rule”. This rule of thumb states that if you withdraw 4% of your investment portfolio or less each year, you will more than likely experience a ‘safe’ retirement, sheltered from the ebbs and flows of the stock market as best you can. However, some may not know that this rule assumes a 30-year retirement, which is typical for most retirees. If we want to stretch that number to 40 years, the withdrawal rate is slightly lower. For this blog, we will assume a 3.5% withdrawal rate; some professionals have argued that 3% is the better number, but I will split the difference.

A key component of a retiree’s paycheck is Social Security. The average working family has a household Social Security benefit of just under $3,000/month. For our calculations, we will assume $35,424/year for a married couple retiring at age 65. For a couple retiring ten years sooner, however, this benefit will be reduced to compensate for the lost wages. The 55-year-old couple will collect $27,420/year starting as soon as they are able to collect (age 62).

For simplicity’s sake, we will assume a retirement ‘need’ of $10,000/month in retirement from all sources. A $120,000/year budget is fairly typical for an affluent family in retirement nowadays, especially for those with the means to retire early. Of course, we get to deduct our Social Security benefit from our budget to determine how much is needed from our portfolio to support our lifestyle in retirement. (Note that we are assuming no additional income sources like pensions or annuities for this example). As the 4% (or 3.5%) safe withdrawal rule already accounts for future inflation, we can apply this rule to determine an approximate retirement fund ‘need.’ See the following table for the results:

As you can see, over $500,000 in additional assets would be needed to retire ten years earlier. These rules can be applied to larger or smaller retirement budgets as well. While this exercise was heavily predicated on a rule of thumb, it is worth noting that no rule is perfect. Your experience could differ considerably from the assumptions listed above.

This exercise was your author’s best attempt to simplify an otherwise exceptionally complex life transition. This is merely scratching the surface on what it takes to retire comfortably. To increase your financial plan’s success rate, many other factors must be considered, such as tax treatment of distributions, asset allocation of your investments, life expectancy, etc. If you are interested in fine-tuning your own plan to try to retire earlier, it is best to consult an expert.

Josh Bitel, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Examples used are for illustrative purposes only.

How Doing Your Retirement Planning Can Put You in the Driver’s Seat

Contributed by: Sandra Adams, CFP®

I have had some fascinating conversations in meetings with prospective clients over the last several months. Most of these clients have never previously worked with a financial planner, choosing the DIY (“Do It Yourself”) route until now. And for most, now that they are within a few years of retirement, knowing if they truly have the assets and income resources to be able to retire and support themselves throughout their life expectancies is something they do not want to leave to chance.

Going through the in-depth retirement planning process with the assistance of a financial planning professional can help answer the many questions that so many clients have trouble answering on their own or can only guess without accurate analysis. Things like:

• When should I take Social Security (or when should each of us take Social Security if we are a married couple)?;

• When is the best time to draw pensions and/or should I take the lifetime income benefit (if I choose this option, do I take a straight life payout vs. a payout with a spousal benefit if I am married) vs. the lump sum payout from my pension benefit?;

• If I have an annuity(ies), should I use them for income during retirement, and when?;

• What accounts do I draw from, and when do I draw from them to pay the least amount of taxes during retirement?

• How will I pay for Long Term Care if I do not have Long Term Care insurance?

• And most importantly, will I be able to financially support the lifestyle I desire for as long as I may live without running out of money?

Many potential clients I have met recently have come in assuming they will need to work until they are at least 70 (the age of their maximum Social Security age). While they may value their work, in many cases, it has seemed apparent that there was a fair amount of stress involved with the work they are doing. Knowing whether the client could retire earlier than 70 and giving them the CHOICE about when they could retire would undoubtedly put them in the driver’s seat. Knowledge is power!

Doing your retirement planning earlier than later allows you to make the choices you want to make when you want to make them. Knowing where you stand financially, now and into the future, allows you to decide what you want to do and when you want to do it — you are the driver, and you choose the route to your retirement destination!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Opinions expressed in the attached article are those of Sandra D. Adams, CFP® and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Blogs You May Have Missed (And Are Worth the Read!)

Contributed by: Center for Financial Planning, Inc.®

As we mentioned last week, Center team members have written an astounding 59 blogs in 2022! With that much content, it’s easy to miss some of our posts here and there. So, take a look at the list below for some of our Most Underrated Blogs of the Year. There just may be one that peaks your interest!

1. Harvesting Losses in Volatile Markets

Kali Hassinger, CFP®, CSRIC™ discusses several ways you can carry out a successful loss harvesting strategy during inevitable periods of market volatility.

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2. What Happens to my Social Security Benefit If I Retire Early?

Are you considering an early retirement? Kali Hassinger, CFP®, CSRIC™ explains how Social Security is one topic you'll want to check on before making any final decisions.

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3. How to Find the Right Retirement Income Figure for You

When it comes to your retirement income, you don't want to guess. Sandy Adams, CFP® shows you where you should start to develop the most accurate number for you.

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4. Why Retirement Planning is Like Climbing Mount Everest

Nick Defenthaler, CFP®, RICP® shares that our goal as your advisor is to help guide you on your journey - both up and down the mountain of retirement!

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5. New Guidelines May Help Retirees Retain More Savings

Josh Bitel, CFP® shares new RMD tables that now reflect longer life expectancies, which means a reduction in yearly required distributions.

The Largest Social Security Cost of Living Adjustment In Over 40 Years!

Contributed by: Kali Hassinger, CFP®, CSRIC™

It has recently been announced that Social Security benefits for millions of Americans will increase by 8.7% beginning in January 2022, making this the highest cost of living adjustment since 1981. The increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2021, through September 30th, 2022. Inflation has been a point of concern and received a great deal of media attention this year, so this increase comes as welcome news for Social Security recipients who have received minimal or no benefit increase in recent years. 

In past years, the Medicare Part B Premium has often eaten away at the Social Security increase. In 2023, however, the base Part B Premium is being reduced by $5.20 to $164.90. This premium, however, can be increased based on income from the recipient's 2021 tax return. 

The Social Security taxable wage base will increase in 2023 from $147,000 to $160,200. This means that employees will pay 6.2% of Social Security tax on the first $160,200 earned, which translates to $9,933 of Social Security tax. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who make over $250,000. This is unchanged from 2022. 

For many, Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement. The Senior Citizens League estimates that Social Security benefits have lost approximately 33% of their buying power since 2000. This is why, when working on running retirement spending and safety projections, we factor an erosion of Social Security's purchasing power into our client's financial plans. If you have questions about your Social Security benefit or Medicare premiums, we are always here to help!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

What’s the Social Security Spousal Benefit?

Contributed by: Lauren Adams, CFA®, CFP®

At The Center, having a Social Security filing strategy is an important part of the retirement planning process. For couples where one of the spouses did not work outside of the home, many are surprised to find out that their projected Social Security benefit is much larger than they would have expected. 

This is usually due to the Social Security Spousal Benefit – a benefit that an individual may be entitled to based on the earnings history of their spouse. Here is the high-level overview of this benefit:

Who: Available to those who have been married at least one year and are 62 years or older.

What: The benefit amount can be up to 50% of the working spouse’s Primary Insurance Amount at Full Retirement Age (FRA). The spousal benefit only kicks in if this benefit is higher than the receiving spouse’s own retirement benefit.

When: That depends! The working spouse needs to have filed for the spouse to claim this benefit. If the receiving spouse claims before their own FRA, then the spousal benefit is permanently reduced (just like the standard benefit). But unlike the standard benefit, there are no delayed retirement credits that increase the spousal benefit after the receiving spouse’s FRA. This complicates claiming decisions for couples and is why working with a financial advisor - who can take all the different factors related to each couple’s situation into account - is especially important.

Where: You can apply for benefits, including spousal benefits, online at https://www.ssa.gov. 

Why: The spousal benefit originated earlier in the 20th century when the typical family structure often saw only one individual working outside the home and aimed to provide some level of financial security for the non-working spouse. 

Note that the rules above are different if the spouse is caring for a qualifying child or has been divorced or widowed. Contact us to see how we can help maximize your retirement benefits based on your individual situation.

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James.

What Happens to my Social Security Benefit If I Retire Early?

Contributed by: Kali Hassinger, CFP®, CSRIC™

Did you know that the benefit shown on your Social Security estimate statement is not just based on your work history? Your estimated benefit actually assumes that you will work from now until your full retirement age, and on top of that, it assumes that your income will remain about the same that entire time. For some of our younger, working, and successful clients, early retirement is becoming a frequent discussion topic. What happens, however, if you retire early and do not pay into Social Security for several years? In a world where pensions have become a thing of the past for most people, Social Security will be the largest, if not the only, fixed income source in retirement. 

Your Social Security benefit is based on your highest 35 earning years, with the current full retirement age at 67. So, what happens to your benefit if you retire at age 50? That is a full 17 years earlier than your statement assumes you will work, effectively cutting out half of what could be your highest earning years.

We recently had a client ask about this exact scenario, and the results were pretty surprising! This client has been earning an excellent salary for the last ten years and has maxed out the Social Security tax income cap every year. Her Social Security statement, of course, assumes that she would continue to pay in the maximum amount (which is 6.2% of $147,000 for an employee in 2022 - or $9,114 - with the employer paying the additional 6.2%) until her full retirement age of 67. By completely stopping her income, and therefore, her contributions to Social Security tax at age 50, she wanted to be sure that her retirement plan was still on track.

We were able to analyze her Social Security earning history and then project her future earnings based on her current income and future retirement age of 50. Her current statement showed a future annual benefit of $36,000. When we reduced her income to $0 at age 50, her estimated Social Security benefit actually dropped by 13% or, in dollars, $4,680 per year. That is still a $31,320 per year fixed income source that would last our client throughout retirement. Given that she is working 17 years less than the statement assumes, a 13% decrease is not too bad. This is just one example, of course, but it is indicative of what we have seen for many of our early retirees. 

If you are considering an early retirement, Social Security is not the only topic you will want to check on before making any final decisions. There are other issues to consider, such as health insurance, having enough savings in non-retirement accounts that are not subject to an early withdrawal penalty, and, of course, making sure you have saved enough to reach your goals! If you would like to chat about Social Security and your overall retirement plan, we are always happy to help!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James.