2020 has been tumultuous, who knows what 2021 will bring? One thing is certain: there will be some changes to social security. While no one yet knows some of the things that will be changing, we’ve got a pretty good overall view.
- The first important thing to know about Social Security in 2021 is that there will be a 1.3 percent cost of living increase (COLA). This isn’t much of an increase; it’s about a $20 jump per month for most people. If you’re married, and you and your spouse both receive Social Security, you’ll probably see an increase of about $33, and a widow or widower with two kids can expect a raise of about $39 per month. The maximum amount anyone will get is $137 per month, increasing the income of someone who retired at age 66 to a maximum of $3148 per month. Your personalized COLA numbers will be posted in your Social Security account in December 2020, so that you can know what to expect when the raise goes into effect in January.
- Disabled workers will get this COLA as well. SSI for an individual will go up by $11, and for a couple, $16 per month. The number is $16 for a disabled worker, too, and a disabled worker with a spouse and kids is looking at about $29 per month.
- The COLA is less than it has been in recent years, but not by much. The 1.3 percent number was calculated based on year-over-year inflation. To be more specific, it’s the difference between the Consumer Price Index for Urban Wage Earners in the third quarter of 2019 and the third quarter of 2020. There’s not always a COLA, because if the prices have fallen, there’s no adjustment. That happened in 2010, 2011, and 2016, but in 2020, there was a 1.6 percent COLA. The highest COLA since the adjustment became automatic in 1975 happened in 1980; that year it was 14.3 percent.
- The maximum earning cap is going higher, too. Social Security is funded by a payroll tax, which is set at 12. 4 percent on eligible wages. That 12.4 percent is split in half, with employees paying 6.2 percent and employers paying the other 6.2 percent. Self-employed workers have to pay the entire 12.4 percent. If you make over a certain amount of money, though, the amount that’s subject to these taxes is capped. In 2020, the maximum taxable amount was $137,700, but it’s going to be $142,800 in 2021.
- The amount of money you can earn and still receive benefits is going up in 2021. People who take retirement benefits before they hit retirement age, while they’re still working, don’t get full Social Security benefits. The way it’s calculated is that there’s a certain amount they’re allowed to earn and for every $2 above that amount, they lose $1 in benefits. In 2020, the amount a person could earn from working while receiving Social Security benefits was $18,240 per year, but in 2021 it will climb to $18,960 per year. The year you reach full retirement age, the earnings limit goes up to $50,520, and the penalty is reduced to $1 withheld for every $3 you earn, and once you actually turn your full retirement age, there’s no penalty if you choose to work and collect Social Security simultaneously.
- Full retirement age is shifting. When the program was initially established, in 1935, the full retirement age was set at 65. Currently, it’s 66 years and 8 months, but for people who turn 62 in 2021, it will be 66 and 10 months. The full retirement age is set to increase in two-month intervals for people born between 1955 and 1959, and for those more in 1960 or late, it will be 67.
- Medicare increase could reduce some of 2021’s gains. We’re not sure yet how much that will be, but it has the potential to eat into your COLA. The good news, thanks to a recent law change championed by AARP, the increase should be less than has been projected.
Social Security has been around since 1935, and most retirees depend on it, but a lot of myths persist about the system. There’s the idea that Social Security is running out of money or being raided to pay for other programs. Many people also believe that our elected officials don’t pay into the Social Security program like the rest of us. In truth, as long as payroll taxes continue to be paid, Social Security will not run out of money, because it’s a pay-as-you-go system. Senators and representatives have been paying into the program since 1984. And money can’t be stolen from Social Security to pay for other programs, though it can be borrowed. The tax revenue from Social Security is invested in special U.S. Treasury securities, and as with all Treasury bonds, the proceeds can be spent by the federal government on other programs. However, the Treasury, like other bondholders, has to pay the money back, with interest. There are funding challenges, because the retiree population is growing faster than the working population, and people are living longer. This could result in a reduction of benefits by about 2035, though the program still won’t be broke. It’s likely that it will be revamped between now and then to cover the deficit, much like it was in the 1980s.
Another myth is that Social Security is like a retirement savings account, with money being socked away in a personal account for you, paid to you with interest when you retire. Your benefit is not based on how much you put in, but rather how much you earned over your working life. On average, Social Security benefits are about 40 percent of a person’s pre-retirement earnings. That’s one reason it’s important to have a retirement fund that will provide you with supplemental income after you retire.
As we begin to emerge from the COVID-19 pandemic, economists are describing the economic recovery as being K-shaped. The economy is often explained using letters like a U, V, or W, to demonstrate the ups and downs, but what does a K represent? It’s indicative of the fact that people in higher-income households, with jobs that are more flexible and easier to do from home, are doing better in this time of recovery than lower-income families with less portable jobs. Similarly, larger companies have fared better than small businesses. These are factors to consider when you’re making investments during this time of upheaval.
When you’re looking for good advice on building a strong financial plan, Nelson Financial Planning can help. As one of the best financial planning firms in Central Florida, we provide guidance and financial advice so that you can make informed decisions about your future. We believe you should enjoy your retirement, so we’ll work with you to create a plan for a stress-free future. Call (407) 307-3061 or contact us today to set up your free consultation.
In our spend-happy culture, it’s sometimes hard to find financial peace of mind. The national credit card debt is up over $200 billion over the past five years, and things like online shopping and keeping up with the Joneses make it almost certain that this number is going to continue to snowball. Enjoying your life is important but having a sound financial plan is vital. One key to gaining a strong financial footing is identifying areas in which you overspend, perhaps listed below.
- Clothing: Don’t pay full price for clothing. There are plenty of tricks for getting around this, from shopping consignment to finding promo codes online to joining loyalty programs.
- Water: Bottled water costs more than gasoline, so skip it. Instead, buy a filter for your home and use reusable bottles.
- Car Insurance: Most people choose an insurance company and stick with it, even if the premiums keep climbing. By shopping around every two to four years, you could reduce your rates by $100 to $200 a year.
- Being over-insured: It’s important to have the insurance you need, but Insurance companies, tend to play on people’s fears, roping them into insurance they don’t need, like extra rental car protection or too much life insurance. Additionally, about 84 percent of Americans don’t ask for basic discounts in their insurance, though these discounts could save hundreds of dollars each year.
- Cheap things: Dollar store items may seem like a bargain, but if they break almost immediately, they’re not such a great deal. Look for mid-priced items of good quality instead.
- Expensive things: While going for the cheapest option often means missing out on quality, buying the most expensive doesn’t guarantee it. Shop carefully: high priced mattresses and top-dollar hotels, for instance, are unlikely to be worth more than more reasonable options.
- Subscriptions: Streaming services, gym memberships, and anything that auto-renews can all cost you in the long run. Take a hard look at what you’ve subscribed to and decide what you can do without.
- Eating Out: It’s fine once in a while, but if you make it a habit you can easily end up throwing away hundreds of dollars every month.
- Eating In: If you’re not careful, it’s easy to overspend in the grocery store, overbuying food you paid too much for and will likely eventually throw away. Never shop when you’re hungry, plan meals before you go, based on the sales, and always shop with a list.
At Nelson Financial Planning we want to help you create a financial plan that provides for your future. As one of the best financial planning firms in Central Florida, we provide guidance and financial advice so that you can make informed decisions about your future. We believe you should enjoy your retirement, so we’ll work with you to create a plan for a stress-free future. Call (407) 307-3061 or contact us today to set up your free consultation.
As President Trump marks his 100 th day in office tomorrow, we thought it would be a good time to take stock of where the markets, economy and headlines are.
2017 is clearly off to a great start for the markets. So far, U.S. markets are up over 6% and non-U.S. markets are up over 8%. We believe that much of this movement is simply a catch up to the economic improvement in the second half of 2016. This better economic data had generally been underappreciated and underpriced by equity markets. The election, in and of itself, simply provided the resolution of some uncertainty that gave the markets an opportunity to focus on the better economic conditions at hand.
Currently, we believe the markets are pricing in the expectation of additional economic growth. This expectation is predicated on a combination of diminished regulatory burdens on the private sector; lower personal and corporate tax rates; and fiscal stimulus in the form of infrastructure spending. Unfortunately, these pro-growth policies have been delayed by political wrangling. We are optimistic that these policies will take effect in the near term, but any further delays in implementation could splash some cold water on the markets.
Despite this political uncertainty, the greater trend towards optimism cannot be ignored. Consumer and business confidence numbers are both at levels not seen for well over a decade. Of course, optimism can be fickle particularly if headline events like North Korea take a disastrous turn. Absent that type of event (which is always a risk in today’s world), we continue to expect that this optimism will lead to tangible effects like greater spending by households and greater hiring by corporations.
Here at the office, another tax season has come and gone. If we have not yet visited with you personally in 2017, now is a perfect time to come in to the office for a general conversation. In other news, Nelson Financial Planning was recently ranked by AdvisoryHQ News as a top-rated financial advisory firm in Orlando, FL. We have attached their review to this email for your reference and to share with your friends.
We are getting ready for our upcoming client appreciation event at Enzo’s on your choice of May 11 or May 16. We thank you for your timely response and selection of food and dates. We are very excited that the response to this event has been so strong. Both dates are currently on a wait list due to venue size restrictions so please let us know if your plans change.
As always, for our latest thoughts, tune in to our weekly radio show “Dollars and Sense” at 9AM on Sunday at 540 AM/102.5 FM. The show is also available the following day on our website www.NelsonFinancialPlanning.
com or on Facebook or Twitter under Nelson Financial Planning and Linked In under Joel Garris.
Look forward to seeing you on either May 11 or May 16!
From Brexit to Trump, 2016 produced unexpected results that made it a particularly difficult year to navigate. While our returns were positive for the year with overall results up about 7-8%, market performance particularly the Dow made headlines moving to the 20,000 level. Unfortunately, this performance was driven by a handful of companies which undermined our diversified approach in the short term.
These concentrated results occurred in a handful of financial, healthcare and energy companies who saw their fortunes reverse dramatically on election night in anticipation of a looser regulatory environment under Trump. The broader markets in 2016 saw minimal earnings and revenue growth (0.1% and 2.2 % respectively) for businesses. Diversification – just like being consistent on your holdings – is a strategy that works well over time to reduce overall portfolio risk. While providing consistent returns, it is not 100% perfect all the time.
It has been a while since we have seen this type of phenomena – 17 years in fact. In 1999, a handful of tech companies drove the market to new highs only to fall back to earth in 2000 and 2001. While I don’t believe we are in a 1999 scenario these days, there are certainly some parallels. Regardless, don’t be alarmed by your quarterly statement that you will get next week that will show minimal growth for the quarter. In addition, the international and bond portion of your allocations also worked to undermine the domestic performance. The silver lining there is that your investment allocations are lighter on those asset classes these days. Overall, the year was decent in terms of results and that’s our overall investment goal.
Looking ahead to 2017, the consumer appears to be less pessimistic than in prior years based on the past few months of consumer confidence data. This is crucially important for broad economic and market growth as consumer spending accounts for 70% of our economy. In fact, corporate earnings are expected to grow by 12% for 2017 with top line revenue growth of 6%. Meanwhile the average consumer has less debt, more cash and has finally started to experience real wage growth (nearly 4% in 2016) for the first time in years. For these reasons, we are particularly positive for the overall market in 2017.
2016 was a busy year at the office. Our main efforts involved a successful rebrand to Nelson Financial Planning along with continued efforts to ensure the cyber security of your information. We also became active on social media so be sure to follow us on Facebook, Twitter or Linked In. These outlets also provide an opportunity for broader dissemination of our weekly radio show “Dollars and Sense.” Hearing it live at 9 AM on Sunday at 102.5FM or 540AM can often conflict with church schedules but now it is always available the next day on our website at www.NelsonFinancialPlanning.
Tax season and our client meetings for 2017 will start very soon. In fact, our first one is coming right up on January 19. This meeting will follow our usual dinner format starting at 5:30 at the Country Club of Orlando, 1601 Country Club Drive, Orlando, FL. Our speaker will be Joe Valencia from the American Funds. Joe’s 2017 Outlook presentation should make for an informative meeting. Please RSVP for you and your guests to this email or to the office at 407-629-6477.