Category: Medicare

COLA at 8.7% in 2023

The Bureau of Labor Statistics (BLS) inflation data are utilized annually to create an automated cost-of-living adjustment (COLA) for employees (BLS).

Inflation has been growing in 2022, one of the most pressing concerns for Americans today. If you are retired or planning to retire, keep an eye on monthly inflation statistics because they impact the annual COLA adjustment for federal retirees and Social Security income. The additional payments will be made available to recipients beginning in January.

The CPI-W index is used to calculate the magnitude of the increase automatically.

COLA  2023, All-Time High Since 1981.

According to the Bureau of Labor Statistics’ most recent 2022 inflation report, inflation was 0.4% higher in September based on the Consumer Price Index for All Urban Consumers (CPI-U). According to the BLS, the all-items index (a different index from the CPI-U) climbed 8.2% during the last year.

The Consumer Price Measure for Urban Wage Earners and Clerical Workers (CPI-W) is the BLS index that many FedSmith readers are interested in. This index has risen 8.5% in the last year.

The CPI-W is the most important index for retirees who receive a federal employee annuity payment. It is also the amount computed for the 2023 COLA for Social Security payments.

It is now at 291.854 on the index.

The average CPI for the third quarter of 2021 was 268.421. This is critical because the yearly COLA is calculated by comparing the year-over-year growth in the CPI-W using the average of the third-quarter months of July, August, and September. This equals an 8.7% rise over the third-quarter average last year.

The greatest COLA rise in the last three decades was 14.3% in 1980. The 2023 COLA increase will be the highest since 1981, when it was 11.2%.

In 1981, inflation was 10.3%, and the annual COLA was 11.2% higher than the current amounts.

Since Obama assumed office, inflation has been on the rise. If the methods used to calculate it haven’t evolved, the current trend could be far more severe than the one observed during Carter’s tenure. In general, modifications in inflation calculations have resulted in lower reported inflation. The updated method shifted the CPI’s idea from assessing the cost of living required to maintain a steady level of life. The revised computation technique considers the cost of living rather than price increases.

According to one source that records this data, the current inflation rate would be around 17% if the earlier calculating technique had been utilized.

Are You Dissatisfied with the Cola Increase?

In 2022, inflation has remained high. As a result, retirees may be surprised by downward revisions to their 2023 COLA expectations, as earlier estimates in 2022 were 11% or higher. The bad news does, however, have a bright side.

COLAs do not fully offset inflation. As a result, the purchasing power of a retired person’s income decreases with time. For example, since 2000, the purchasing power of Social Security income has plummeted by more than 40%.

Retirees benefit financially with lower inflation and lesser COLAs. Because COLAs do not entirely replace the purchasing power of retirement income, lower inflation and lower COLAs usually better retain a retiree’s purchasing power. While huge COLA payments in response to high inflation deliver more funds, each dollar buys less than it did previously. In light of this, seniors should view lowering COLA estimates as great news.

Why Does Your Retirement System Affect Your 2023 COLA?

Retired federal employees who retired via the FERS system will get 1% less than those who retired under the CSRS system in 2023. This is because they receive the full COLA for Social Security while not the full COLA for their pension or annuity.

Beginning in 1987, CSRS was phased away. Less than 100,000 active government employees are still employed under the CSRS system. The majority of federal retirees receive CSRS benefits.

Social Security is not a benefit of the retirement plan for CSRS employees. Some CSRS employees earn Social Security benefits based on jobs other than working for Uncle Sam. However, this is not a mandatory component of the CSRS scheme.

During their federal government careers, FERS personnel can also invest for their future retirement through the Thrift Savings Plan (TSP). The federal government contributes an additional matching amount to the TSP to offer a higher income stream during retirement.

Contact Information:
Email: [email protected]
Phone: 2129517376

Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].

Whenever it comes to ensuring your financial security in retirement, the FERS annuities are a comparative steal.  

What is a FERS annuity?

In 1986, Congress explicitly created the Federal Employees Retirement System (FERS) for federal civilian employees. Benefits are available under the FERS retirement plan from three main sources:

Two of the three benefits under FERS (TSP and Social Security) will go with you if you leave the federal government before retiring, according to the Thrift Savings Plan (TSP). 

What’s the value of your FERS annuity?

The government and you must make mandatory contributions to the FERS defined benefit plan. You spend less money on this benefit than Uncle Sam does. Your service history (measured in months and years and high-3 yearly pay) determines your FERS annuity. 

If you retire before age 62 and have completed at least 20 years of service, you will earn an annual annuity based on 1%. If you retire after the age of 62 with at least 20 years of service, you will earn an annuity based on 1.1% per year. The 1% component is used for individuals who are 62 years or older but also have fewer than 20 years of service. Employees in particular categories (such as firefighters, police officers, air traffic controllers, etc.) would be paid a larger proportion. 

How much money would you have needed to accumulate on your own to obtain a payout similar to what you will receive from your FERS annuity?

A lot of it! Consider the scenario where you have 30 years of total federal employment and retire before age 62. Your top three salaries are $100,000 annually. Once you turn 62, your FERS pension will be $30,000 per year with a cost-of-living adjustment. The COLA begins to apply when a special category employee retires. 

What amount would you have to save to earn a $30,000 annual inflation-indexed income?

The consensus is that the answer is $750,000. This is based on the so-called 4% rule, which states that if you start taking withdrawals from a lump sum at 4% and adjust them for inflation each year, there is minimal risk of running out of money. The 50 years between 1926 and 1976, encompassing the Great Depression, were used to create this rule. Then, it was compared to withdrawal rates that would protect capital. 

Bill Bengen, the financial planner who conducted the analysis, concluded that there wasn’t any possibility that a person who adhered to the 4% rule would’ve run out of cash in fewer than 33 years, even under exceptionally unfavorable market conditions. In reality, Bengen asserted that a 5% rate could be more practical, reducing the sum that must be amassed for the individual in our case to around $625,000.

According to a recent MetLife analysis, the average retirement fund amount is anticipated to be $450,000. However, for the individual in this scenario, that amount would not be sufficient to match the value of the FERS annuity. 

Would you have been capable of replacing 30% of their pre-retirement salary with savings?

Whenever it comes to ensuring your financial security in retirement, your FERS annuities are a relative steal. 

How your FERS annuity is computed

The first step is to find your current “high-3” – the highest average basic wage you have received during three consecutive years of employment. A federal employee’s high-3 pay is typically the sum of the three most recent years of compensation.

Divide your full creditable years of service by your high-3 average yearly salary, then multiply that result by 1%. 

If your high-3 average is $85,000 and you’ve worked for the government for 30 years, then you qualify. Your FERS annuity would then be $2,125 per month or $25,00 per year. Your annuity will now receive a bonus if you retire after age 62 and have at least 20 years of service. You will multiply your service years and high-3 by 1.1% instead of 1%. As a result, instead of receiving $25,500 per year, as in our previous example, you would now earn $28,050 ($2,337 monthly instead of $2,125).

Contact Information:
Email: [email protected]
Phone: 2129517376

Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].

Don’t accept less when you might boost your benefit checks and create a more financially secure future.

The Social Security system is not designed to replace private savings, pension plans, and insurance protection. The individual’s own effort, planning, and prudence will provide him with a higher quality of life upon retirement. The system emphasizes thrift and self-reliance while preventing destitution in our national life. 

Contrary to popular belief, Social Security is not a giveaway. It’s a system that working individuals contribute to throughout their careers in exchange for some needed assistance later in life.

Social Security, which provides, on average, approximately 40% of your pre-retirement income, is likewise unlikely to support you. Nevertheless, it’s worthwhile attempting to maximize your benefits, and there are specific methods to do so, so here’s how you may gain an extra 24 percent (or more!) from the program.

The fundamentals of Social Security

Several strategies can boost your Social Security payments, and we’ll focus on one of the most effective here. To set the scenario, everyone has a full retirement age when we can begin receiving the full benefits to which we’re entitled based on our earnings history. For the majority, the full retirement age is 66, 67, or somewhere between those ages.

However, we can begin receiving benefits as early as 62 and as late as 70 – and when we start has a significant influence on the amount of our checks.

How to get an additional 24%– or more

Each year that you postpone starting to receive your benefits after reaching full retirement age, up to 70, your checks will rise by roughly 8%. Delaying from 67 to 70 will increase your benefits by around 24%, enough to transform a $2,000 payment into a $2,480 check and increase yearly benefits from $24,000 to over $30,000. Meanwhile, starting to collect your checks early will diminish them.

Start Collecting at:	Full retirement age of 66	Full retirement age of 67
62	75%	70%
63	80%	75%
64	86.7%	80%
65	93.3%	86.7%
66	100%	93.3%
67	108%	100%
68	116%	108%
69	124%	116%
70	132%	124%

The table shows how some people may be able to increase their benefits by 24% or even 32%.

Think it through

Delaying may appear to be a no-brainer option, but think about the big picture:

If you start collecting later, you’ll get fewer checks overall. But conversely, those who begin early will receive many more checks.

When you start may not matter much for people who have average-length lives, except for your spouse, since the two of you could optimize benefits through a coordinated Social Security plan.

Many individuals just can’t wait until they’re 70 because they need the money now, whether due to a job loss, a health setback, needing to care for a loved one or a lack of savings. Those in bad health may benefit from starting sooner as well.

Delaying your full retirement, if possible, might pay off in ways other than increasing your Social Security payment. You’d be able to save and invest for retirement for a few more years, for example, and your nest egg will have more time to develop. But, of course, it will also have to support you for fewer years.

Delaying Social Security can be accomplished by withdrawing more from other retirement funds, such as IRAs or 401(k)s until the Social Security income stream begins.

Everyone’s situation and decision-making process will be at least slightly different. Therefore, spend some time learning more about Social Security so you can make informed decisions and get the most out of the program.

Contact Information:
Email: [email protected]
Phone: 2129517376

Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].

Put plainly, the Thrift Savings Plan (TSP) is a type of retirement plan made available to federal government employees, including uniformed service members and members of Congress. It is similar to a 401(k) plan offered by private employers—it enables federal employees to set pre-tax contributions aside for investment options with funds that ultimately pay toward retirement. By educating yourself on the ins and outs of a TSP, you can reap the rewards of your investment for years to come.

Currently featuring more people than the number of citizens across several countries, the TSP is a government-created retirement program with over 99,000 millionaires. Its net worth is also larger than several nations across the globe, something the private sector is incapable of touching. As a federal employee, the Thrift Savings Plan (TSP) is a must-have you don’t want to miss out on, with advantages that will pay off well into your retirement years. Before you miss out on the available perks, please consider how the TSP was created and how it was intended to benefit government employees.

Introduced as part of the Federal Employees Retirement System Act in the 1980s, the Thrift Savings Plan (TSP) provided workers with investment opportunities much like a 401(k). The rule since its inception was to keep the TSP simple and affordable, with low administrative fees. Federal workers can make contributions up to $20,500 per year for those younger than 50. Anyone older than 50 years may take advantage of the $6,500 catch-up limit. The government also matches contributions, much like a 401(k), for anyone eligible within the Federal Employees Retirement System (FERS). For example, by contributing 5% of your salary, you are eligible to receive an additional 5%.

Depending on your plan, the overall cost of a TSP is arguably one of its best features, with expense ratios averaging to a mere 0.058% (for the F Fund). In terms of fees, for each $10,000 held within your plan, you should project paying as much as $5.80 annually. The differences between a TSP and the average cost of a 401(k) equates to additional savings you could invest toward maximizing your TSP retirement savings.

Upon reaching the age of 59 ½, TSP participants may begin making withdrawals without risk of a penalty with a few exceptions (including death or permanent disability). Should you start suffering from adverse health conditions spelled out by the TSP, you may qualify to withdraw early. This is not without exemption, though, and comes with a penalty of 10% additional taxes on the withdrawn amount. However, once you reach 72, you will be required to make TSP withdrawals. Taxes are also not paid until you begin taking distributions upon reaching the minimum age.

Contact Information:
Email: [email protected]
Phone: 2129517376

Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].

Inflation. There are no indications that it will slow down any time soon, and there is no quick fix. The timing is, therefore, terrible if you have just retired or are about to retire. Nobody has been concerned about inflation for almost 40 years. A whole generation has never even known how inflation might affect their finances. However, the current inflation rates are the highest since 1982.

Families are worst hurt by price hikes in electricity, autos, housing, and food. But it goes further than that.

Even the costs of travel (flights, lodging, and rental cars), TVs, appliances, and furniture have risen to heights that were unthinkable just a year ago. Everyone will be affected by these exorbitant rates. However, pensioners will be more affected than working families.

The “silent killer” of retirement: inflation

When you have a fixed income, spending more on groceries and gasoline means making trade-offs someplace else. And before you realize it, you can be compelled to choose between purchasing necessities like food or medicine.

Many experts are concerned that the current inflation rate may be worse than we think, while some people think a recession could be coming soon.

The 71st Secretary of the Treasury of the United States and economist Larry Summers have expressed their concern that we are already approaching a point when cutting inflation without triggering a recession will be challenging.

The effects on your nest egg are still felt even at modest inflation rates of 2% or 3%.

Marketwatch claims that a 3% inflation rate would gradually reduce your ability to buy things. For instance, if your retirement budget is $5,000 per month, your purchasing power would decrease to $3,720 a month in 10 years. Your purchasing power would be only $2,760 per month after 20 years.

Therefore, even with a mere 3% inflation rate, your purchasing power might be lost in just 20 years.

Think about what recent inflation rates might quickly do to your retirement savings. But set aside the numbers and consider inflation differently. What did your home cost twenty or thirty years ago? It was significantly less expensive than what someone would pay today, right?

What do you believe the value of your home will be in 20 or 30 years? I think it’s safe to say that it would be worth a lot more. The same is true for every purchase you make, including that brand-new La-Z-Boy recliner, groceries, and gas.

Most retirees encounter difficulties in this area. They set a savings target based on current prices rather than projected prices for the next 20 or 30 years. And this can increase the likelihood that you’ll run out of money in retirement.

But not all the news is negative. You can use a few easy tactics to prevent losing purchasing power to inflation. These techniques may help reduce risk while providing a solid hedge against inflation. The sooner you take concrete action, the better off you’ll be in either case. Nobody can afford to ignore inflation when rates are this high.

Contact Information:
Email: [email protected]
Phone: 2129517376

Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].