Social Security Retirement benefits are set to increase in 2020- a modest 1.6% increase for the average retired worker that adds an extra $24 per month to their retirement check. Retired couples will see their combined benefits grow to $40 per month. This cost of living (COLA) increase is one of the smallest over the past twenty years and will help offset 2020’s increasing Medicare Part B and Part D premiums.
The most significant changes happening to Social Security retirement in 2020 will be the increasing social security payroll taxes (FICA) for workers and the increasing age for full retirement benefits. Here’s what you need to know:
Social Security tax on wages will increase by 3.6% in 2020, with the maximum amount of wage earnings ($137,700) subject to the increase. The maximum Social Security tax paid per worker in 2020 will be $17,074.80. Half, or $8537.40, is withheld over the course of the year and the employer pays other half. Self-employed individuals will continue to pay both parts of their social security tax payment. Why the increase? The boost bases off the Consumer Price Index and a different index measuring wage growth; both trigger increases in the tax.
The Full Retirement Age increases by two months to 66 years and eight months to receive ‘full retirement benefits’ and not a decreased monthly payment. This increase in age for full benefits is only the tenth time in eighty-five years that the full benefits age has increased. The full retirement age will change again to age 67 years in 2022 for those born in 1960 and later.
Both of these changes in increasing tax collection and raising the benefits age are not enough to offset a deficit in the system from increasing longevity and the disparity of taxes from fewer American workers paying SSI taxes due to a declining population. When Social Security retirement benefits started, the life expectancy of a male worker born in 1940 was 60.8 years for men, and 65.2 years for women. As of 2017, the life expectancy for a baby born in the U.S. was 78.6 years.
Only 4% of retirees claim Social Security benefits at the optimal time (Full retirement age), leaving $3.4 trillion in unclaimed benefits. Together we can decide if waiting to take full retirement benefits is in your best interest. Assessing your benefits and retirement savings is the only way to determine what is best for you. It’s imperative to gather accurate information before making a final and unchangeable decision regarding benefits.
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade on a worldwide
scale. It is a place for member countries to settle arguments and negotiate
trade deals. But what happens when negotiations between two counties go awry,
and tariffs continue to apply for long periods like we are experiencing now?
The WTO can only intervene when its members create undesirable consequences for
one another by disputing or blocking economic development and citizen’s
well-being.
This is important for investors, as the flow of trade
domestically and abroad impacts the profitability and returns in retirement
portfolios and personal investing. As investors, we continue to invest in
global economies, while world politics and trade disputes have far-reaching
effects.
According to the WTO,
the trade agreements between
countries are lengthy and complicated because they are legal texts covering a
wide range of activities. But, several fundamental principles run throughout
all of these documents. These principles are the foundation of the multilateral
trading system:
Non-discrimination- A country should not discriminate between its trading partners, and it should not discriminate between its own and foreign products, services, or nationals.
More open- Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.
Predictable and transparent- Foreign companies, investors, and governments should be confident that trade barriers should not be raised arbitrarily. With stability and predictability, investment is encouraged, jobs are created, and consumers can fully enjoy the benefits of competition — choice and lower prices.
More competitive- Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost to gain market share; the issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.
The latest dispute between the U.S. and the EU is expected to impact aircraft and parts manufacturing. Additionally, imported food products will not be spared as higher grocery store bills and dining out will impact Americans until new trade agreements start.
As trade talks between China
and the U.S. go unresolved, financial analysts fear the
extended tariffs are sending troubling signals to financial markets in an increasingly fragile economic environment.
The latest blacklisting of Chinese
tech companies has added more layers of problems for U.S. companies in the tech
and manufacturing sectors that rely on Chinese technology. Within the lines of
policy, the WTO must remain impartial to politics between countries, even in a
global economic crisis built by trade wars.
The demographics of retirement and a ‘retired person’ is rapidly changing worldwide. Over the past 200 years, there have been remarkable changes in health and wealth around the globe. Now, there is a converging demographic between countries, thanks to world aid and trade, and technology. Human life expectancy is increasing; in just the United States, thirty years have been added to our life expectancy over the past 100 years. Retirement is no longer viewed as winding down one’s life like it was in the 1950’s. Today’s pre-retirees are making plans for their second phase of life. According to Age Wave, the nation’s foremost thought leader on issues relating to an aging population, today’s pre-retirees view retirement as an ‘Aspirational Life Stage’:
This same study reveals that during retirement, personal well-being, contentment, fun, and happiness increase and anxiety decreases. The top objectives of pre-retirees include:
The good news is that humans are living longer and that all of the above objectives are possible in retirement for those that plan, have good health, and the financial resources when they retire. The ‘Boomer Generation’ has the greatest outlook for long life, since they will outlive previous generations by almost 40%, compared to their great-grandparent’s generation.
The bad news is that having regular employment, good health, and the premature depletion of retirement assets can deter anyone’s retirement plan. Regardless of intentions to retire at a later age compared to previous generations (age 69 or into their 70’s), unplanned events continue to contribute to earlier retirement, despite even the best retirement planning. The pre-retirement generation faces circumstances that many of them didn’t anticipate:
Source: Insured Retirement Institute “Boomer Expectations for Retirement 2018”
Financial professionals can help Americans ‘get on the right track’ when they ‘advise’ and align clients’ expectations with realities. This same research reveals that financial professionals shouldn’t only offer ‘Retirement Plan A’ that intends to cover thirty years or more, but address that clients may need to resort to ‘Plan B.’
A financial advisor’s job is to additionally provide clients with an adjusted contingency plan full of options. If you need of financial planning with a contingency plan, now is an excellent time for us to plan for ‘Plan B’ before you enter retirement.
Interest rates can have a positive or a negative effect on
the U.S. economy, the stock markets, and your investments. When The Fed changes
the Federal Funds Rate (the rate at which banks can borrow money to lend to
businesses or you), it creates a ripple
effect.
The raising and lowering of the Fed Funds Rate is the role
the Fed plays in stimulating or slowing down the economy. In theory, the
lowering of interest rates should help boost the U.S. economy by encouraging
borrowing and spending; consumers and businesses are more willing to make big
purchases. Higher interest rates slow down borrowing and spending and restrict
the flow of money into the economy.
Both of these scenarios reflect the performance of the stock
market and your retirement assets. If you have fixed-income investments, the
teeter-tottering of rates can impact negatively depending on the type of
investment. In today’s economic environment, The Fed is lowering interest rates
in an attempt to stimulate the economy enough to avoid another recession. Lowing interest rates are a sign of a weakening economy.
The Trade War continues to impact businesses with increased
costs of imports for production or resale, and uncertainty over borrowing.
Lowering interest rates may not be enough to stimulate the economy or corporate
earnings, or to continue growing the share prices of the investments held in
your retirement portfolio.
Historically when recessions end, there is a period of
increasing interest rates, which, when left unchecked, can lead to loss of
purchasing power for both consumers and businesses. It is this high-inflation
scenario that The Fed hopes to avoid as they continue lowering interest rates.
What impacts when interest rates increase?
If you have questions about your fixed-income investments or
retirement assets during this economic environment, feel free to contact our
office for a consultation.