Six Ways A Social Security COLA Helps Advisors
News that Social Security checks are going up next year, by a cost-of-living increase of 1.7 percent, probably won’t have much direct impact on the retirement income planning that advisors are doing. But it may have an indirect impact, and in a positive way.
According to estimates provided by the Social Security Administration (SSA), an “aged couple, both receiving benefits” that average $2,140 this year will receive an average of $2,176 in monthly benefits in 2015. The monthly average for all retired workers will rise from $1,306 this year to $1,328 next year.
These increases are better than nothing, and for those living mostly on Social Security, the hikes are probably a boon.
As it turns out, that small increase can probably help retirement planning advisors too. Here are six possible ways.
First, advisors know that retired clients won’t suddenly go on a wild spending spree because of the cost-of-living adjustment (COLA). There’s just not enough bump-up to spur that. Nor will the increase give an incentive to those who are still working to stop saving for retirement. They are still working, after all, and therefore not eligible for Social Security.
Second, advisors can use the new COLA level to reiterate and underscore a basic planning message. This message is that, even though Social Security goes up with inflation, “you still need to continue saving for retirement, because you never know what the COLAs will be or what you will need in retirement.”
Third, the modest level of increase can be a springboard for discussion about why Social Security benefits alone will likely not lead to a comfortable retirement for many people. Some people do manage on Social Security alone, of course, by moving into “tiny” houses, relocating to other states or countries with lower cost of living, sharing quarters with relatives, and the like. But for people who aim for a “comfortable retirement” with little change in lifestyle from the working years, that can be a painful future to envision. They will look for more than Social Security. A lot more.
Fourth, the increase serves as a reminder that it’s really nice to have a COLA. For some clients, the Social Security COLA might help clients understand how COLAs work, an understanding that might help them decide about adding a COLA option to an income annuity or other product they are considering.
In that regard, advisors can always point to the variance in Social Security COLAs to demonstrate how COLA increase amounts are not fixed. In 2015, the increase will be 1.7 percent. Meanwhile, in 2014 it was 1.5; in 2013, it was 1.7; in 2012, it was 3.6; and in 2011 and 2010, it was a big empty zero.
Fifth, advisors can use Social Security materials on this not only to bring themselves up to date on the developments but also as a resource for clients. For the latter purpose, it helps that the Social Security Administration’s announcement about the 2015 increase is short and to the point. Some clients may be interested in going there on behalf of their parents or other retired relatives, if not for themselves.
Sixth, the new levels help provide context for serious income planning. For instance, some couples with means will be interested to learn that the maximum monthly Social Security monthly benefit rises to $2,663 in 2015 from this year’s $2,642. For a married couple or two unmarried sharing quarters, where both retirees get the maximum in 2015, the combined monthly benefit courtesy of Social Security would be $5,326. That makes for nearly $64,000 a year for the two of them.
Some couples may expect that such an income would support a comfortable retirement, without having to dip into other assets or to do so only for extras. The advisor who hears this will quickly point out that this will depend on location, health care expenses, spending patterns, other assets, taxes, and many other factors. Once again, the COLA will have opened the door to meaningful discussion about retirement — and possibilities.