The comprehensive financial plans we design at Keen Wealth factor in every piece of available information to help folks plan for what we know is coming and prepare for the unexpected. While recent events at home and abroad are raising some new questions, we did learn some important answers last week that will help folks get ready for 2024.
On today's show, we discuss listener questions about Social Security, Medicare, Ukraine and Israel, and year-end financial planning.
1. "What will the Social Security COLA be in 2024? And are Medicare premiums going up or down?"
COLA is the annual cost-of-living adjustment that the Social Security Administration makes to help benefits keep pace with rising prices. Due to higher inflation, last year's COLA was 8.7%, the largest increase in 40 years. Now that inflation has slowed a bit, the COLA for 2024 will be 3.2%.
As for Medicare, you may remember that in 2022, Medicare raised premiums by 14.5% due, in part, to the estimated cost of a new Alzheimer's drug. Medicare later determined they had overestimated that cost and made a correction by reducing Medicare premiums in 2023. In 2024, Medicare Part B premiums are going back up to $174.70, a 5.9% increase from 2023.
Speaking of Medicare, don't forget that the annual Open Enrollment period ends on December 7th. Even if you're happy with your current plan, take some time to sit down with your financial advisor and a healthcare professional to review your coverage and your options for 2024.
2. "I'm retiring at the end of this year at 62-and-a-half years old. I do not plan to continue working. My full retirement age is 67. I believe that the projected benefit amounts on my Social Security statements assume I'll work until age 67 at my current earnings. Since I won't be working, what are the advantages of delaying my Social Security benefits until my full retirement age?"
This listener is correct: the Social Security Administration projects your benefits based on your current earnings and your full retirement age. If you retire early, your benefits will be a little lower at your full retirement age. But since the SSA's formula takes into account 35 years of your earnings, my team at Keen Wealth has calculated that this early retiree may only lose around $40 per month on their full benefits. So even if you retire early, the longer you wait to take Social Security, the bigger your benefits will be until you reach age 70. Those annual COLA adjustments are added to your benefits every year as well!
3. "How does geopolitical instability affect the U.S. economy and my financial plan?"
I know folks don't like to ask questions like these because it can feel insensitive. But the tragedies that we've seen abroad have such a profound emotional effect on us that it's important to separate those feelings from your financial planning. Shock, sadness, and worry can cause some folks to make knee-jerk money moves that could seriously harm themselves, their families, and their future prospects.
So, while we are in no way equating war with market volatility, investors can look to past events to get a sense of how one affects the other.
For example, while Russia's invasion of Ukraine did cause a 6.8% drawdown on the S&P 500, the markets recovered in just 23 days.
The 2017 North Korean Missile Crisis triggered a 1.4% drawdown that recovered in 36 days.
The 11-day drop after 9/11 sent the markets down 11.6%, but recovery only took 31 days.
The most significant decline we've seen in recent history came after Pearl Harbor in 1941. After 143 days, the markets bottomed down 19.8% and recovered in less than a year.
And while many folks are worried that the current Speaker vacancy in the House of Representatives could culminate in a government shutdown, the markets haven't reacted to those very much either.
Again, pointing out that geopolitical events do not typically have long-term effects on the markets in no way minimizes their significance. But I do believe that it's part of our responsibility at Keen Wealth to help folks stay focused on things they can manage in their financial plan and stay on track towards a secure retirement, no matter what's happening in the rest of the world.
4. "What tax moves should I be considering before the end of the year?"
Efficient tax planning is a year-round process, but there are some time-sensitive moves that you should discuss with your advisor soon.
Depending on your income for the year, there might be an opportunity to lock in some investment gains at a low tax rate, take losses to lower your tax burden or convert some of your assets into a Roth IRA where they can grow tax-free.
Folks over 50 might want to think about making catch-up contributions to their retirement accounts.
Retirees who are in a giving mood as the holidays approach might benefit from making a qualified charitable distribution from their retirement accounts to their favorite causes.
And with interest rates still high, it's important that you review the payments you're making on loans and the return you're getting on cash parked in traditional savings accounts. Unfortunately, your bank isn't going to call you up and let you know that you have better options for earning more interest or paying down an adjustable line of credit.
One of the benefits of working with a fiduciary investment advisory firm, such as Keen Wealth Advisors, is their commitment to monitoring these issues and their responsibility to act in their client's best interest. Schedule your annual financial review, and let’s get to work on hitting your goals for 2024.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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