Are you trying to decide when to start drawing on your Social Security benefits? Knowing what your options are before you make an irreversible decision can really pay off.
It may be surprising to see the number of ways that you can increase your benefits, regardless of whether you take them early, on time, or late. There are several strategies that can provide you with a higher benefit, both now and later, if you play your cards right.
Read on to find out how you can get the most out of your benefits once you are ready to do something with them.
What sort of increase in Social Security benefits will benefits recipients see for 2022? The official word is out, and there will be a record-breaking 5.9% cost of living adjustment (COLA) to benefits for next year, according to the Social Security Administration.
In 2021, Social Security had a 1.3% COLA to benefits, which was slightly smaller than the 1.6% increase of 2020.
But in 2022, Social Security recipients will get a boost in benefit payments that is over four times the average COLA from these past two years. This coming COLA of 5.9% is also the largest increase in almost 40 years.
This has been done in an effort to keep up with the runaway inflation that has gripped America. The consumer price index shows that the price of retail goods has risen by an astounding 5.4% in 2021, at the time of this writing.
The pandemic has also disrupted much of the United States’ economic infrastructure and caused job losses. Retirees who depended on part-time work and other income sources were hit, so the COLA adjustment will help offset the decline in their incomes.
If you are looking for someone to help you with preparing for retirement, you might have come across financial professionals with alphabet soup after their name. What those letters generally represent are professional designations.
These designations are programs in which an advisor has completed certain studies and exams in order to have professional recognition of their expertise in a certain field. For example, some designations for financial advisors cover retirement income planning.
Other designations deal with high-level knowledge and planning concepts around life insurance products. Then some designation programs recognize an advisor for high-level knowledge of overall concepts, such as around investments, retirement, taxes, financial planning, insurance, risk management, and estate planning.
Any small business owner can tell you about how much they have given to building their companies. But what about business succession planning, when it comes to making their exit on the backend?
Whenever, and however, they decide to step away, are these entrepreneurs as ready as they could be to enjoy the hard-earned fruits of their life’s work? A survey by Wilmington Trust offers some answers.
It’s no exaggeration to say that small businesses play a big role in America. Both Project Equity, a non-profit group focused on economic security, and the U.S. Census Bureau estimate that there are approximately 2.34 million small businesses in the U.S. These companies employ about 25 million people and, pre-pandemic, generated roughly $5 billion annually in aggregate revenue.
Yet while small business owners are actively involved with their enterprises, a study by Wilmington Trust found that many of them don’t have transition plans. What’s more, a large percentage of these entrepreneurs haven’t even thought of any business succession planning.
According to Ernst & Young’s Family Business Center of Excellence, the average age at which small business owners start transitioning from their businesses is 62.
For a lot of entrepreneurs, succession planning will likely cover some sort of transition to retirement. Or it might be a lifestyle in which they remain plugged into their communities, but they might not be as active in their companies as they were in earlier years.
However, in the study, nearly 60% of small business owners didn’t have a formal business succession plan of any kind currently in place. Moreover, 11% of this group hadn’t even thought about having a transition plan at all.
What will be your major retirement income sources? What income streams will you count on to keep up your ideal lifestyle in your ‘non-working’ years? Do you plan to be financially independent, or will you have to depend on your children or other loved ones for support?
These are important questions as you move closer to retirement. Once you step back from a full-time career, your current income from work earnings, entrepreneurship, or other sources will probably change.
The focal point then turns to your lifestyle in retirement and what sources of income you will use to maintain it. Nor is this just a personal question. Rather, it’s a major concern for millions of retirees affecting their financial future.
One survey that can help with these questions is from the Transamerica Center for Retirement Studies. Each year, this survey captures findings from thousands of retirees, workers, and even employers, including on what they are using for major retirement income sources (or what they expect those sources to be).
The Transamerica study is considered to be one of the most accurate samples of the U.S. retirement landscape as a whole. Its numbers are typical of the ‘average’ retiree in America.
As you get closer to retirement, you want to be sure that you are ready for a smooth transition into your post-career lifestyle. There are several things that you can do ahead of time to help yourself with this goal.
To make it digestible, here is a breakdown of different things to do and think about at every stage of pre-retirement.
When calculating individual benefits, the Social Security Administration draws on up to 35 years of personal earnings history. To receive Social Security benefits in the first place, you have to work at least 10 years. Therefore, it’s not that surprising that many people see their benefits as something they have earned.
Yet each year, Uncle Sam collects a share of people’s benefits through income taxes. You may have to pay taxes on as much as 50%-85% of your benefits, depending on how much income you report to the IRS. Read More
Despite the negative headlines and money columns painting them as otherwise, annuities are neither good nor bad. They are simply an instrument that works well in some situations and not quite as well in others.
For instance, an annuity is the only thing besides Social Security that can pay you a truly guaranteed income stream for life. That is a feature that you won’t find anywhere else. Period. You can also get other benefits such as tax-advantaged growth and financial protection from market risk, among other things, from different annuities.
Yet, you wouldn’t be able to tell that from the way that many folks, including financial professionals, react when annuities are brought up in retirement planning. And what do these critics say?
Such options “only” serve as a way for financial advisors or agents to make a commission, nothing more. They don’t quite stack up to other investments, according to the naysayers.
The issue with that sort of talk is it focuses on just the negatives. For starters, annuities aren’t an investment but a risk-managing tool.
They provide a strong defense against the risk of running out of money in retirement, which tops the list of financial concerns for many retirees and those nearing retirement.
In past decades, more people have been buying annuities. A big part of this is due to the unique features that annuities offer, such as tax-advantaged growth and contractual guarantees such as lifetime income.
Of course, many kinds of annuities are available now. Knowing what annuity is right for your situation (if indeed a good fit) can be a challenge in some cases.
If you are looking for growth, then you might look at fixed index annuities or variable annuities, as they both offer more growth potential than traditional fixed-type annuities.
But to make a confident and well-informed decision here, it helps to know how these types of annuities are alike and how they differ.
At their core, both are contracts with a life insurance company for a certain period. Where their differences lie is how their money grows, their exposure to market risk, and the fees that they carry, among other things.
If you have spent some time exploring your options for retirement planning, you might have heard of a qualified longevity annuity contract, or QLAC for short. But what is a QLAC? What are some reasons that folks might consider this option for their situations?
As everyone knows, people tend to have many financial concerns nowadays. Having enough retirement income is a top concern among those who have stepped back from a full-time career. Among other things, low interest rates have made it harder to generate predictable income for even just run-of-the-mill living expenses in retirement.
With low rates hitting fixed-interest options such as CDs, Treasury securities, and bonds, the challenge is figuring out how to adequately supplement other sources of predictable income, such as Social Security or a pension. No wonder, then, that surveys have found that many retirees are afraid that they might run out of money in their later years.
Since they have a monopoly on paying reliable lifetime income, annuities are one vehicle that can help fill this gap. In fact, besides Social Security, annuities are the only thing on the planet capable of paying you a guaranteed income for life.
Challenges Still Linger
But even the income from an annuity may not be enough to cover a retiree’s expenses when they get into their final years, especially if they need services such as long-term care or home healthcare.
Conversely, many retirees won’t need to start taking money from their IRAs or workplace retirement plans when they turn 72 (the new age at which required minimum distributions must start). RMDs can create a tax headache for those with considerable retirement assets, and they may be an excess source of income in some cases.
Enter again a possible solution with QLACs, which can help with providing income in later years or providing some tax relief for a while regarding required minimum distributions.
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