Current and soon-to-be retirees received some good news recently: The Social Security Administration will send out larger stipends in 2019, raising benefits by nearly 3 percent next year for approximately 70 million Americans.
However, there is some question as to whether the increase will make a notable difference in individuals’ budget considerations, thereby making other funding resources every bit as indispensable as they were before the largest adjustment in over five years.
Adjustments effective at start of 2019
The COLA will go into effect for the lion’s share of Social Security recipients on the first day of 2019. The effective date will be Dec. 31 for an additional 8 million. But regardless of when the change happens, financial advisors are cautioning retirees not to alter their savings strategy just yet, presuming they’re apportioning funds into various financial products, such as 401(k)s, annuities and estate planning vehicles.
Cathy Weatherford, president and CEO of the Insured Retirement Institute, warned that the COLA needs to be put into perspective, encouraging though the adjustment may be.
“The 2.8 percent increase in Social Security payments is welcome news, but much of it will likely be eaten away by inflation and rising overall health care costs,” Weatherford advised.
Rising health care costs may offset the COLA slated to go into effect for retirees in 2019.Health care is a major concern for many Americans, one that lawmakers have grappled with for several years to effectively address. Instead of seeking out traditional employer-based plans or HMOs, the short-term variety are increasingly popular, which some legislators have promoted.
According to a recent poll from the Kaiser Family Foundation, these plans, on average, charge premiums that are 54 percent more affordable than those that comply with the Affordable Care Act, although don’t have as many benefits or provider networks.
Given health concerns are more of a problem for most people as they age, this leaves retirees with high medical bills when Medicare doesn’t cover certain treatments, medications or tests.
High health care costs are part of the reason why Social Security remains a major resource for Americans today. Close to 60 percent of respondents in a recent Gallup poll said they relied upon it to pay for everyday expenses, more so than work-sponsored pensions (35 percent).
“There’s 1 Social Security recipient for every 2.8 who contribute.”
Diversification is key
While the Social Security system isn’t in immediate jeopardy, more people are drawing upon it than ever – approximately 1 person for every 2.8 who contribute – suggesting that its solvency is questionable for the long-term.
Weatherford said retirees of today and tomorrow should avoid putting all their eggs in one basket by diversifying how they save.
“Current retirees with a mix of pension income, Social Security and accumulated savings are doing comparatively well,” Weatherford said. “But the coming waves of baby boomer retirees are less well-equipped for a financially secure retirement.”
Most baby boomers may have retirement savings available, but not to the extent that they once did. Back in 2014, for example, approximately 80 percent of men and women in this generation had funds available for use in the post-working world, according to a report from the IRI. Today, that’s down to 58 percent, although up from 54 percent in 2017.
Additionally, in a separate IRI study, 70 percent of baby boomers said they will generate most of their retirement income from Social Security.
“The U.S. is facing a near-term crisis that may see millions of retirees short of monthly guaranteed income to lead a financially secure retirement,” Weatherford cautioned. “This fact alone makes it imperative that Congress pass comprehensive retirement security legislation this year that will increase participation in workplace retirement plans and provide greater access to products that can provide guaranteed lifetime retirement income.”
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