Latest news with #retirees
Yahoo
6 hours ago
- Business
- Yahoo
Will the Social Security 2026 Cost-of-Living Adjustment (COLA) Make a Difference for Retirees? Here's What We Know.
Key Points The Social Security Administration will announce the 2026 COLA in mid-October. The increase is likely to be similar to the increase that seniors saw in 2025. A part-time job or other options may help if it's not enough to make ends meet. The $23,760 Social Security bonus most retirees completely overlook › It might seem strange to think about what your Social Security benefits will look like in 2026 when we still have five months left of 2025. However, if you're already struggling to stretch your checks far enough, it's only natural to wonder whether the next cost-of-living adjustment (COLA) will bring you any relief. The Social Security Administration won't announce the official 2026 COLA until the middle of October, but there are already estimates floating around that give us some idea of what to expect. And it may not be what you want to hear. The 2026 COLA will look pretty similar to 2025's The Social Security Administration bases its COLAs on changes in average third-quarter inflation data from one year to the next, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It sounds more complicated than it is. Basically, it takes the CPI-W numbers for July, August, and September of the current year and averages them. Then, it does the same for the numbers from July, August, and September of the previous year. The difference becomes the COLA. For example, the 2024 average was 2.5% higher than the 2023 average, so seniors got a 2.5% COLA in 2025. We don't have all of the data to do the 2026 COLA calculation right now, so all we can do is guess, based on where the numbers appear to be headed. Earlier in the year, The Senior Citizens League (TSCL), a nonpartisan senior group, projected a low 2.1% COLA, which would be the smallest since 2021. However, that number has slowly crept up, and now, TSCL's most recent projection puts the 2026 COLA at 2.6%, slightly higher than what seniors received last year. Someone receiving the $2,005 average monthly benefit, as of June 2025, would get an extra $52 per month, bringing them to $2,057 per month. What this means for seniors While a 2.6% COLA is in some ways better than a 2.1% COLA, it's important to realize that neither is likely to vastly improve your finances. Higher COLAs are often a sign of higher inflation, so the extra money you'll get will likely go toward paying for increased costs on groceries, utilities, and other living expenses. Even if the official COLA were to come in higher -- say 3% -- that would only add about $60 to the average check. Chances are that you could use a little more than that, particularly if you don't have a lot of savings to supplement your checks. Many others are in the same boat, and groups like the TSCL have long been calling for reforms that would increase Social Security COLAs to help checks better keep pace with inflation. By TSCL's calculations, benefits have lost 20% of their buying power since 2010, despite the COLAs. So far, though, the government hasn't seriously considered any of these reforms. This may be partly because Social Security is now just eight years away from insolvency, and larger COLAs would only accelerate this deadline. The end result is that it's largely up to seniors to work out how to stretch their benefits a little further every year. This isn't always easy, but you may be able to manage by limiting your discretionary purchases or considering a part-time job if you're struggling to make ends meet. You could also try applying for other government benefits to help you cover essential costs, like food and utilities. There's Supplemental Security Income (SSI), as well. This is a monthly benefit for the blind, disabled, and low-income seniors. The maximum federal benefit is $967 for a single adult and $1,450 for a couple and increases annually with the COLA. In addition, some states supplement SSI benefits for their residents. Once the Social Security Administration announces the 2025 COLA, it'll be time for you to work out a plan for next year. However, it isn't too early to start looking at your options. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Will the Social Security 2026 Cost-of-Living Adjustment (COLA) Make a Difference for Retirees? Here's What We Know. was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CBS News
2 days ago
- Business
- CBS News
What is the 4% rule for annuities (and why does it matter to retirees)?
After decades of hard work, retirement should be a time to enjoy the fruits of your labor. But figuring out how to make your retirement funds last, especially in an uncertain or volatile economy, is often easier said than done. After all, if you make one wrong move, you could run the risk of outliving your savings, which would put you in a precarious financial position. That's where retirement income strategies come into play, and one of the most well-known is the so-called "4% rule." This simple guideline has long been used to estimate how much retirees can safely withdraw from their savings each year without running out of money. But what happens when annuities are part of the equation? Does the 4% rule still apply, or does it become irrelevant? Understanding how the 4% rule interacts with annuities can make a big difference in how you structure your income in retirement. Below, we'll examine what you need to know before relying on this decades-old rule. Find out more about the annuity options available to you today. The "4% rule" is based on the idea that if retirees withdraw 4% of their retirement portfolio in the first year — and adjust that amount for inflation each year thereafter — their savings will likely last for at least 30 years, even in turbulent markets. The rule, which is based on historical returns, assumes a mix of stocks and bonds and is based on historical returns. But while the 4% rule is a popular starting point for retirement planning, this rule wasn't created with annuities in mind. So when annuities entered the picture, the 4% rule for annuities was born. The 4% rule for annuities refers to a way to evaluate whether an annuity's guaranteed income stream is equal to — or better than — what you might safely withdraw from a traditional portfolio using the 4% rule. For example, if you have $500,000 saved and you follow the 4% rule, you'd withdraw $20,000 in the first year. But if an annuity offers you $25,000 per year for life (a 5% payout rate), it may appear to offer more value, especially since that income is guaranteed and not subject to market risk. However, annuities are more complex than a simple withdrawal strategy. They're insurance products, which means part of what you receive is a return of principal, and part is interest. And, unlike a traditional portfolio, annuity payments usually don't adjust for inflation unless you opt for that feature. Compare annuities and lock in a top rate on this retirement tool now. Understanding how the 4% rule applies to annuities matters because it helps retirees make smarter decisions about how to generate steady income and avoid draining their savings too quickly. Here are a few ways it can impact retirees: It helps compare income options. The 4% rule acts as a benchmark. If you're considering buying an annuity, you can compare the payout it offers against the 4% withdrawal you'd take from your investment portfolio. If the annuity offers a significantly higher guaranteed income and fits your needs, it may be worth the trade-off of liquidity. It highlights the value of longevity protection. Annuities can protect against outliving your money, which is something the 4% rule doesn't account for on its own. Even if your portfolio theoretically lasts 30 years, living beyond that point can pose a problem. An annuity that pays for life, no matter how long you live, can eliminate that risk. It calls attention to inflation and flexibility. The 4% rule assumes you'll increase withdrawals with inflation. Many fixed annuities do not. So while an annuity might initially pay more than a 4% withdrawal, its real value can erode over time unless it's inflation-adjusted. On the flip side, annuities don't require active management or decision-making during market downturns. It helps diversify income sources. Using the 4% rule and annuities together can create a hybrid strategy. For example, you might use an annuity to cover essential expenses like housing, utilities and food, and rely on your investment portfolio for discretionary spending. This approach can balance security with flexibility, something that neither strategy provides alone. It provides a sanity check for retirement readiness. Comparing your current savings to what a 4% withdrawal would look like can give you a quick check on whether your assets are likely to support your lifestyle, even if you're not sure you want to buy an annuity. If not, an annuity may help you stretch your resources more efficiently. The 4% rule isn't a hard-and-fast solution for retirement planning and it wasn't designed with annuities in mind. But when used as a benchmark, it can help retirees assess whether an annuity offers comparable or better income potential. For many people, annuities provide peace of mind that a traditional withdrawal strategy might not. For others, the lack of flexibility may be a dealbreaker. Ultimately, though, the best retirement income plan often involves blending strategies. Whether you follow the 4% rule, invest in annuities or use both, understanding how each approach works and how they interact can help you make confident decisions about your financial future.
CBS News
2 days ago
- Business
- CBS News
5 common annuity mistakes to avoid now, retirement experts say
A common fear among retirees is running out of money. Though inflation isn't as high as it was in previous years, the cost of living is considerably higher today than it was just five years ago, and those on a fixed income are uniquely vulnerable. And, as fears of a recession and other economic hurdles loom, many people nearing retirement are eyeing annuities as a source of income security. An annuity is a contract that allows you to exchange a lump sum payment or a series of payments today for a guaranteed future income. They're a popular retirement tool for someone concerned about running out of money before they die, and annuities come in all different forms, including fixed, variable and indexed. But while they can be useful, annuities can also be a complex financial tool, and it's easy to make a mistake that could derail your retirement plan. Here's what to know about the common annuity mistakes people make now. Find out how the right annuity can help you reach your retirement goals now. To help you navigate the world of annuities, we spoke with several retirement experts to find out some of the common missteps retirees make and what you can do to avoid them. Perhaps the most common mistake retirees make with annuities is not fully understanding how they work, experts say. Not only are annuities complicated, but unlike many other retirement savings tools, they're also difficult (and sometimes expensive) to get out of. "I think the biggest mistake we see with prospective clients is they often don't understand what they were sold, how they work, what the fees are, and how they benefit from the product," says Tyler End, a certified financial planner (CFP) and CEO and co-founder of Retirable. "Often, there's a sales pitch promising upside with limited or no risk that sounds great, but people don't always understand the intricacies behind the product that actually make it a bad fit for their situation." To avoid this pitfall, End recommends working with a reputable professional, such as a CFP, who can confidently explain how the annuity works and why it may be the best option for your situation. And, the advisor you work with should deliver you a complete financial plan, not just sell you an annuity, End says. That financial plan may include Social Security benefits, your 401(k), and other savings and income vehicles, in addition to the annuity. "If it sounds too good to be true, it probably is," End says. "We often hear from customers that their 'investment' can only go up and has no fees. Digging into the contracts reveals another story, and they are stuck with surrender charges if they want to get out. Remember, annuities are an insurance contract first and foremost." Explore your annuity options and lock in a great rate today. There are many types of annuities on the market, including fixed, variable, and indexed annuities, immediate and deferred annuities, qualified and nonqualified annuities, and more. When shopping for an annuity, it's critical to choose the one designed to meet your specific goal. "Annuities aren't all built the same—some focus on income, others on principal growth," says Fradel Barber, a ChFC and CEO of The World Changers, a company focused on financial education in the insurance industry. "If someone buys an income-based annuity but expects to see their account value grow, they're going to be disappointed. That mismatch can throw off their entire retirement plan." Barber recommends starting with your actual goal and working backward. Do you want a steady source of income? To make your retirement savings last as long as possible as long as possible? To make sure your spouse is protected if something happens to you? Once you know your goal, you can work with a professional to choose the best type of annuity to accomplish it. An annuity is designed as a long-term investment, and you're likely to run into trouble (and lose money in the process) if you hope to tap into that money early. "It's paramount that seniors don't see their annuity as a substitute for a bank account. It is not a liquid asset where cash can be taken out whenever they need it," says Jeff Lorenzen, CEO at American Equity. "There are often hefty penalty charges for early withdrawal, and while some contracts do offer hardship provisions, accessing funds can be costly, and the situations where access is permitted will be limited." Sure, unforeseen situations can arise where you have to withdraw money when you didn't plan on it. You still need to put safeguards in place, though, including a robust emergency fund, to minimize the chances of having to withdraw from your annuity. Inflation is one of the greatest fears of many retirees, and for good reason. Most people retire with a fixed amount in their savings, but the cost of living continues to rise, making it more likely they'll run out of money. And unfortunately, some retirees don't take inflation into account when they choose an annuity. "Most retirees invest in fixed annuities, which pay a fixed amount, which is not inflation-adjusted," says Rami Sneineh, a licensed insurance producer and the vice president of Insurance Navy. "The payout may appear to be adequate, but in the long term, inflation may reduce its value over several years or decades." Let's say you retired in 2010 with an annuity that provided $4,000 of income per month. Fast forward to June 2025, and you would have needed roughly $6,000 to maintain the same standard of living, according to the Bureau of Labor Statistics inflation calculator. To protect your future self, Sneineh recommends looking for an annuity that provides a cost-of-living adjustment to ensure your buying power doesn't decline over time. Scams often target people in financially vulnerable situations, and that includes current and soon-to-be retirees. And, in addition to all the scams on the market, you may also run into financial advisors who don't have your best interests in mind when recommending an annuity. But carefully choosing who you buy an annuity from can help weed out scams and bad actors. "Avoid clicking on online ads that promise annuity rates and bonuses that seem too good to be true," says Chris Orestis, president at The Retirement Genius. "When working with a financial advisor, make sure that they are allowed to sell annuities from multiple companies and are showing you multiple options." An annuity can provide financial security and peace of mind for someone worried about running out of money during retirement. But with the complexity of most annuity contracts and the sheer number of options on the market, it can be far too easy to end up with a product that doesn't fit your needs. The most important first step of buying an annuity is working with a financial professional who has your best interests in mind. From there, make sure you've explored all of your options and choose an annuity that best fits your goals. Don't commit to anything until you fully understand the product and its terms. And remember that annuities aren't right for everyone. In the end, you and your advisor might decide that a different financial product is a better fit for reaching your goals.
Yahoo
2 days ago
- Business
- Yahoo
4 Social Security Changes Retirees Need to Know About in 2025
Key Points Americans will pay Social Security taxes on a greater portion of income this year. If you've reached full retirement age (FRA), you can earn as much as you'd like without losing Social Security benefits. FRA has increased for some soon-to-retire workers. The $23,760 Social Security bonus most retirees completely overlook › 2025 is more than halfway over, yet changes to important programs like Social Security remain a hot topic. That may be due to recent drama from the nation's capital or because current workers are keeping an eye on Social Security, ensuring they'll be ready for retirement when the day comes. Here are five changes for 2025. 1. Cost-of-living adjustment If you're already retired, you're undoubtedly aware that the cost-of-living adjustment (COLA) boosted benefits by 2.5% in January. COLA increases are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and were initially designed to fight inflation. Whether your 2.5% increase has kept pace with the year-over-year inflation rate of 2.7% may depend on where you live and how inflation has impacted your area. 2. Maximum taxable earnings increase Social Security taxes are calculated as a percentage of your gross earnings. However, it's only up to a specified amount. For example, workers are responsible for paying Social Security taxes on the first $168,600 earned in 2024. This year, workers will pay taxes on the first $176,100. 3. Maximum Social Security benefits age increase One factor in how much you can receive in Social Security benefits is your age. To make things a little more confusing, full retirement age (FRA) varies by birth year. Claiming Social Security once you hit FRA means receiving full benefits, while claiming earlier permanently reduces your benefits. However, benefits increase by 8% each year you delay retirement past your FRA (up to age 70). Here's where the increase in age for FRA comes into effect: Those born in 1958 hit FRA at age 66 and six months. Anyone born in 1959 will reach FRA at 66 and 10 months. Individuals born in 1960 or later must wait until age 67 to hit FRA. 4. Earnings test: Allows you to earn more in 2025 If you continue to work while collecting Social Security benefits, you may carefully be watching your earnings threshold. That's because earning over that threshold means the Social Security Administration (SSA) steps to withhold some of your benefits. How much is withheld depends on your age. For example: If you haven't reached FRA: SSA will temporarily withhold $1 of benefits for every $2 earned over $23,400 (up from a threshold of $22,320 in 2024). If you reach FRA in 2025: If you're going to reach FRA anytime in 2025, there's a special withholding limit for you. SSA will only withhold $1 in benefits for every $3 earned above $62,160 (up from $59,520 in 2024). This applies only to money earned in months prior to your birth month. For example, if you were born in October, only earnings from January through September will apply. Anything earned in October and beyond is exempt from the earnings test because you've reached FRA. If you reached FRA before 2025: You can earn as much as you'd like without worrying about benefits being withheld. However, the money withheld isn't lost. SSA simply holds onto it until you reach FRA when it's added back into your Social Security checks, permanently increasing your benefit amount. Whether Social Security benefits provide a large portion of your retirement income or barely play a role, it's a good idea to watch for changes -- if for no other reason than to keep up with your household budget. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. 4 Social Security Changes Retirees Need to Know About in 2025 was originally published by The Motley Fool Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
2 days ago
- Business
- Yahoo
This Could Wreck Your Retirement Way More Than Social Security Cuts
Key Points Social Security is facing the possibility of benefit cuts in less than a year's time. Sweeping cuts could upend many workers' retirement plans. One mistake on your part could hurt your retirement finances more so than a broad reduction in Social Security benefits. The $23,760 Social Security bonus most retirees completely overlook › If you've been following the news on Social Security, you may have heard recently that the program is even closer to potentially having to cut benefits. And unfortunately, that's not just a rumor. The most recent Social Security Trustees report contained a pretty dire update. The program's combined trust funds are expected to be depleted by 2034. Once that happens, Social Security may have to cut benefits to the tune of 19%, leaving retirees with just 81% of the monthly checks they'd normally be entitled to. If you're still working, you might assume that not being able to collect your Social Security benefits in full could seriously upend your retirement. But there's another factor that could cause you even more financial pain once your career comes to an end. This mistake could cost you more than Social Security cuts Clearly, the idea of losing 19% of your future Social Security checks is scary. But if you don't save decently for retirement, you could end up in an even scarier situation. One thing to realize about Social Security is that even if benefits are not cut, they'll still only replace about 40% of your pre-retirement wages, assuming you earn a pretty typical salary. Now it's true that retirees can often get by on less money than they needed when they were working. But the general rule of thumb is to expect to need 70% to 80% of your former income in retirement -- not 40%. For some context, the typical Social Security recipient today gets about $2,000 a month. If you're a higher earner, you might get more. But either way, you cannot expect those monthly benefits to cover all of your retirement needs -- not even close. So if you don't make an effort to save for retirement, you could end up in a truly bad spot even if Social Security doesn't end up cutting benefits at all. And to be clear, it's possible that Social Security won't have to move forward with benefit cuts. Though the program's finances are in trouble, lawmakers can look at different ways to avoid a sweeping reduction in benefits. At that point, though, it'll still be on you to help ensure that you don't end up struggling. Relying on Social Security alone is not a good idea, no matter what happens with it. Slow and steady wins the race The idea of building a sizable retirement nest egg might seem daunting. But if you give yourself plenty of time to do it, you may be surprised at how seamlessly those 401(k) or IRA contributions fit into your budget. Imagine you start saving for retirement at age 30, contributing $300 a month. If your portfolio gives you an 8% yearly return, which is a bit below the stock market's average, then by age 65, you could be sitting on about $620,000. Now, let's say you want to limit your withdrawals from savings to 4% per year, which is what experts have long recommended. That gives you about $25,000 of income, which is a nice supplement to your Social Security and a nice cushion against benefit cuts if they do come to be. It's too soon to know what will happen as far as Social Security cuts are concerned. But even if lawmakers can prevent them, you need extra retirement income -- period. The sooner you begin saving, the more confident you should feel that you'll be able to cover your financial needs in the future. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. This Could Wreck Your Retirement Way More Than Social Security Cuts was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
