When we say ‘surprises’, we mean surprises that can damage your retirement income plan and by ‘damage’, we mean permanently lower your retirement income. We will focus on ‘surprises’ can increase your retirement budget (spending more than planned) or decrease your income (or not have it increase as you expected).
The retirement income pyramid (below) shows you income sources you may have by decreasing levels of income surprise-ability (which you might also recognize as risk). Green – less surprise-ability. Orange, yellow and red – more surprise-ability We’ll take small bites.
For today, let’s look at Social Security. Down at the bottom in a safe green color, it must be safe from surprises right? Yes and no:
-Government guaranteed (and you can vote to help maintain that)
-Inflation protected (to an extent) with potential for an annual cost of living adjustment (COLA).
-Medicare premiums come out of Social Security – if you don’t subtract your Medicare premiums from your gross Social Security, you may be planning to spend more that you receive – a bad retirement surprise!
-COLA protection with Social Security is based on a different Consumer Price Index (CPI) than you commonly see on the news which can give lower COLAs than the inflation your budget experiences. If you don’t plan your budget on the Social Security COLA CPI, you could end up with too little cash – a bad retirement surprise!
-Healthcare inflation hits Medicare, so Medicare premium increases can exceed any Social Security COLA – if you plan on a COLA increase in your budget and don’t factor in a Medicare premium increase, you may have a budget problem – a bad retirement surprise!
Up next – the Retirement Teeter-totter. Look for the next update on Friday, July 14 at 12:30 PM.
Questions, comments, or suggestions for retirement surprise areas you want to know more about?
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