December 2016

Retirement Matters

 If you’re wondering how much of a Social Security payout you may receive, one number to keep in mind is 35.

Your benefit is based on your 35 highest years of earnings. If you work less than 35 years, the calculation uses zero for your annual income in the years you’re short. Here is an article that provides a description of how Social Security benefits are calculated.1

Social Security benefits were established during the Great Depression to help ensure Americans would not retire in poverty.2 However, they’re not meant to be the “end-all” retirement income plan. If you haven’t taken a good, hard look at all of the savings and assets that you’ve acquired to create a financial strategy for retirement, that’s where we can help. We can help identify potential retirement income gaps and create a financial strategy using a variety of investment and insurance products to help you pursue your financial goals.

It’s also important to assess your current financial strategy and determine what assets to draw from first, particularly in light of their tax status during retirement and the option to delay taking Social Security to potentially optimize your benefit. You should talk to a financial advisor and tax advisor about how to create a tax-efficient retirement income withdrawal strategy.

A common mistake in retirement planning is underestimating your life expectancy — maybe based on your parents’ or grandparents’ age — and not saving as much as you need. However, it’s more likely for people to live longer than previous generations, and also have higher medical bills.3 Even if one spouse dies young, it doesn’t mean the other won’t live late into their 90s.

Women who took time out of the workforce to care for dependents can be particularly vulnerable during retirement. One recent study found that, in a 10-year break early in their career, the shortage of contributions to Social Security and a retirement plan could result in a loss of up to $1.3 million in retirement savings.4

You also should consider the impact of inflation throughout retirement. Even though the inflation rate has been low in recent years, it can still make an impact over the long term. For example, an average 2 percent inflation rate over a 20-year timeframe can reduce the buying power of a dollar to just 67 cents.5

Also investigate the investment fees associated with your retirement account, as they can have a tremendous impact. A recent analysis revealed that many teachers who invested in 403(b) retirement plans could have account balances 20 to 50 percent higher had they invested in lower-cost holdings over their savings period.6

The same issues can be found with company-sponsored 401(k) plans. A plan that offers funds from only one fund family may not give you enough choices. It is also important to understand the fees you are paying.7

Our firm is not affiliated with or endorsed by the Social Security Administration or any governmental agency and does not provide tax or legal advice.

1 Squared-Away Blog. Center for Retirement Research at Boston College. Oct. 20, 2016. “Your Social Security: 35 Years of Work.” Accessed Oct 23, 2016.

2 Ibid.

3 Jeff Brown. U.S. News & World Report. Aug. 3, 2016. “What’s Your Plan B for Retirement?” Accessed Oct. 23, 2016.

4 Financial Planning. Oct. 9, 2016. “How retired clients can deal with small COLA: Retirement Scan.” Accessed Oct. 23, 2016.

5 Jeff Brown. U.S. News & World Report. Oct. 13, 2016. “Pros and Cons in Investing with TIPS.” Accessed Oct. 23, 2016.

6 Tara Siegel Bernard. The New York Times. Oct. 21, 2016. “Think Your Retirement Plan Is Bad? Talk to a Teacher.” Accessed Oct. 23, 2016.

7 Jill Cornfield. Sept. 27, 2016. “Q&A: Fees and Your Retirement Plan.” Accessed Oct. 23, 2016.


This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Money Saving Tip

Retiree Inflation vs. the Rest of the Population

The 2017 cost of living increases for Social Security benefits were recently released. Given the United States’ continued low inflation rate, Social Security recipients can expect only a 0.3 percent adjustment to their benefits next year. That amounts to about a $5 per month increase for the average retiree.9

The annual assessment of cost of living is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is actually a subset of the Consumer Price Index for All Urban Consumers (CPI-U):10

  • CPI-U represents the spending habits of about 88 percent of the population
  • CPI-W represents the spending habits of about 28 percent of the population

Unfortunately, neither of those indexes accurately reflect the types of inflation that impact baby boomers more than the rest of the population. Specifically, retirees and pre-retirees tend to spend more on health care expenses. Since 2007, the average annual medical cost trend has ranged from a high of 11.9 percent to today’s 6.5 percent rate (which is also the rate predicted for 2017).11

Older retirees also tend to spend more money on housing, when you consider that many either move into an assisted living community or nursing home, or hire in-home care to help them age in place. According to the Genworth 2016 Cost of Care Study, the nationwide median monthly cost for 44 hours/week homemaker services is $3,813.12

A homemaker is someone who provides “hands-off” care, such as cooking, cleaning and running errands. The same study cites the median monthly cost for an in-home health aide — who provides non-medical “hands-on” care such as bathing and dressing — at $3,861.13

Many pundits believe the government should make Social Security benefit adjustments based on the Consumer Price Index for the Elderly (CPI-E), which is an experimental inflation index that measures costs experienced by people age 62 and up. If this index were used to establish the COLA adjustment for next year, retirees would be on target for a 2.1 percent adjustment as opposed to 0.3 percent.14


9 Mary Beth Franklin. Investment News. Oct. 24, 2016. “Big gap between Social Security cost-of-living adjustment and retiree inflation.” Accessed Oct. 27, 2016.

10 Stephen Reed and Kenneth Stewart. U.S. Department of Labor. February 2014. “Why does BLS provide both the CPI-W and CPI-U?” Accessed Nov. 14, 2016.

11 PWC. 2016. “Medical Cost Trend: Behind the Numbers 2017.” Accessed Oct. 28, 2016.

12 Genworth Financial. May 10, 2016. “Genworth 2016 Annual Cost of Care Study: Costs Continue to Rise, Particularly for Services in Home.” Accessed Oct. 28, 2016.

13 Ibid.

14 Mary Beth Franklin. Investment News. Oct. 24, 2016. “Big gap between Social Security cost-of-living adjustment and retiree inflation.” Accessed Oct. 27, 2016.


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