the agency has admitted<\/a>, its estimates often cause individuals to either over or underestimate their future benefits, especially younger workers and women. It\u2019s a problem that advisors will have to address in order to build successful retirement plans.<\/p>\n\u201cWe\u2019ve looked into the issue and we do see many traditional planning models struggling with this,\u201d said Sharon Carson, retirement strategist at J.P. Morgan Asset Management, adding that advisors usually overshoot on the benefit estimate. \u201cIt\u2019s a problem when people end up with less income than they were expecting.\u201d<\/p>\n
Don\u2019t Get Overzealous<\/p>\n
If a client is currently earning $150,000 a year, the SSA calculates their primary insurance amount as if they\u2019ll work for the same wage until retirement, plus a small annual inflation adjustment. In reality, they might not work that long or at wages that high.\u00a0<\/p>\n
\u201cMost software either uses your most current salary as the starting point to back into an estimated Social Security benefit, or it asks someone to put in their primary insurance amount from their most recent statement,\u201d said Marcia Mantell, a Social Security expert and founder of Mantell Retirement Consulting. \u201cIf you aren\u2019t really close to your full retirement age, the numbers can get skewed and become overzealous.\u201d Mantell\u2019s other chief concern is that income planning tools aren\u2019t inflating Medicare Part B premiums aggressively enough. \u201cBest practice today is to project 8% to 10% Part B annual increases,\u201d she warned.<\/p>\n
The latest Chase consumer banking data shows American households earning $300,000 replace just 55% of their pre-retirement income on average after retirement, with 41% coming from private sources like 401(k) plans and 14% coming from Social Security. It sounds like a dramatic cutback, but a 45% reduction in annual income is not as big a lifestyle change as one might assume. \u201cYou have to keep in mind that these people are entering a stage of life where they\u2019ve already paid off their mortgages, they\u2019ve finished paying for their children\u2019s college, they\u2019re not commuting to work,\u201d Carson said. \u201cThey don\u2019t need to spend as much.\u201d<\/p>\n
People who are lower on the income spectrum may replace more of their income in retirement, but that doesn\u2019t mean they\u2019re better off. Take, for example, the average household with $100,000 in pre-retirement income:<\/p>\n
They replace 76% of their working income, with 33% of the money coming from Social Security checks.\u00a0<\/p>\n
The replacement rate is higher, but their $76,000 in retirement income is lower in absolute terms compared with the wealthiest cohorts.\u00a0<\/p>\n
\u201cA household at the $40,000 level replaces 95% of income, with more than half of that coming from Social Security, but you obviously wouldn\u2019t say they are better off,\u201d Carson said.\u00a0<\/p>\n
Are Cuts Coming? Many clients (and some advisors) believe Social Security\u2019s shaky financial position makes benefit cuts inevitable, so they do things like claim early to get their hands on the money while they still can. \u201cWe think this is the wrong perspective,\u201d Carson said. \u201cReforms aren\u2019t easy to accomplish, but the political power of seniors is undeniable. It\u2019s politically untenable to think that members of Congress would simply do nothing and let Social Security cuts happen.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Just give us your best guess. Most financial advisors let the software do the heavy lifting when it…\n","protected":false},"author":2,"featured_media":509934,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[28,147,530,732,733,34309],"class_list":["post-509933","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-personal-finance","tag-personalfinance","tag-retirement-planning","tag-social-security","tag-women-in-retirement"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/509933","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=509933"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/509933\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/509934"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=509933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=509933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=509933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}