Seniors on Social Security will see their benefits increase by 1.3% come 2021. News of an official cost-of-living adjustment, or COLA, was announced this morning by the Social Security Administration.
That 1.3% COLA aligns with previous estimates made by the non-partisan Senior Citizens League and is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the cost of common goods and services.
Between this, Fed's officially stated goal of increasing inflation beyond 2% and real life negative interest rates I feel that in order to retire comfortably on 4% withdrawals one needs to take increasingly higher investments risks...
Between this, Fed's officially stated goal of increasing inflation beyond 2% and real life negative interest rates I feel that in order to retire comfortably on 4% withdrawals one needs to take increasingly higher investments risks...
Withdrawal | Balance | |
Inflation | 2.00% | |
Nominal return | 3.10% | |
0 | 100.00 | |
1 | 4.00 | 99.10 |
2 | 4.08 | 98.10 |
3 | 4.16 | 96.98 |
4 | 4.24 | 95.75 |
5 | 4.33 | 94.39 |
6 | 4.42 | 92.90 |
7 | 4.50 | 91.28 |
8 | 4.59 | 89.52 |
9 | 4.69 | 87.61 |
10 | 4.78 | 85.55 |
11 | 4.88 | 83.33 |
12 | 4.97 | 80.95 |
13 | 5.07 | 78.39 |
14 | 5.17 | 75.64 |
15 | 5.28 | 72.71 |
16 | 5.38 | 69.59 |
17 | 5.49 | 66.26 |
18 | 5.60 | 62.71 |
19 | 5.71 | 58.95 |
20 | 5.83 | 54.95 |
21 | 5.94 | 50.71 |
22 | 6.06 | 46.22 |
23 | 6.18 | 41.47 |
24 | 6.31 | 36.45 |
25 | 6.43 | 31.15 |
26 | 6.56 | 25.55 |
27 | 6.69 | 19.65 |
28 | 6.83 | 13.44 |
29 | 6.96 | 6.89 |
30 | 7.10 | 0.00 |
I'm not so sure. It might surprise you to know that in order for 4% inflation-adjusted withdrawals to be successful over 30 years that the nominal average rate of return only needs to be 3.1% with 2% inflation... that is only a 1.1% real return.
That 3.1% is less than half of the historical nominal return of a 20/80 AA portfolio of 6.6%. now obviously, the sequence of those returns matters, but with a low stock AA the SORR would be lower.
[/TABLE]
I call BS on the 1.3%. Yes, I know it's adjusted for different categories but I think a good bellwether is food costs. ...
For those that I can compare apples-to-apples.... electric rate per KW is 8.8% higher. Insurance (home, auto, umbrella, et al) is the same as last year. Property tax rate is actually a hair lower than 2019, but property tax is higher due to town-wide reappraisal hitting lakefront property more than total.
I'm not so sure that food is a good bellweather... groceries is only ~10% of our spending. I think you need to look at spending as a whole and that is hard to get a good apples-to-apples comparison that isolates the price increases vs volume changes.
I had looked at a few things fro us the other day and posted in another thread:
Americans spend more on food than on almost any other line-item in the household budget. According to the Bureau of Labor Statistics, nationally we spend more than $7,700 per year on groceries and going out. For rural and suburban consumers it's their third-highest expense after housing and transportation. Urban residents spend more on food than anything aside from housing.
https://socialsecurityintelligence.com/the-average-wage-index-awi/For retirement benefits, the COLAs are applied to your benefit in the year you turn 63 and thereafter. You do receive the COLA for the year you turn 62; it just isn’t applied until the year you turn 63. Another way to frame this is by thinking of the AWI as taking care of the inflation before age 62, and the CPI-W taking care of the inflation at and after age 62.
Nice!
I guess this is good for people who haven’t turned 62 yet?
https://socialsecurityintelligence.com/the-average-wage-index-awi/
This thread/topic is timely.
I just elected to start SS, expecting my first payment to be deposited in November.
Will the 1.3% COLA increase be applied in Jan, 2021 payment (deposited in Feb, 2021)?
I'll gladly take the 1.3%. Better that 0.0%.
Nice!
I guess this is good for people who haven’t turned 62 yet?
Let's wait to see how much the Medicare premiums increase to see how much we actually receive. I'm sure some might say that Medicare premium costs, along with the deductibles are included in that 1.3% Cola. I suspect that I may see close to zero additional SS next year.