Is Social Security's 8% delayed retirement credit just? Retirement Scan

Our daily roundup of retirement news your clients may be thinking about.

Please stop my 8% Social Security raise
Seniors who opt to delay their Social Security retirement benefits stand to gain from the 8% per year increase in their benefits, but this increase is "economically indefensible and morally questionable," writes an expert in the Wall Street Journal. Unlike pension plans which rely on market returns to fund their payouts, Social Security puts its investments in U.S. Treasury debt, which yields only 1% in annual return, writes the expert, adding that the program is also funded by payroll taxes, which means it "levies on current economic output." As such, Congress should revamp Social Security to make the annual increases track the country's Gross Domestic Product, he argues. "If GDP increases 4.5% in a year, then seniors who have deferred collecting will receive a 4.5% increase in their eventual benefit. If GDP shrinks 2%, then so would the accruing benefit."
How to minimize sequence risk in your investing strategy
Retirement investors who want to reduce the sequence of returns risk are advised to add a fixed-income component to their portfolio, like cash or multi-layer bond ladder, so they will have an income stream during a market downturn, according to this article on Kiplinger. They may also want to buy an annuity that can provide them guaranteed income throughout their golden years. With an annuity in place, retirees will be less dependent on withdrawals from the equities portion of their portfolio and can minimize their exposure to the risk.

Transform your parents' medical bills into tax-free retirement savings
People who are looking after aging parents can help their elders save taxes by prompting them to itemize their tax deductions on their returns and to deduct their medical expenses, according to this article on MarketWatch. The Internal Revenue Service allows taxpayers aged 65 and above to claim tax deductions for qualified medical expenses if the costs exceed 7.5% of their adjusted gross income for 2016 (the percentage will increase to 10% next year). For example, an 80-year-old taxpayer can deduct $3,750 if his AGI is $50,000 and incurs $7,500 of medical expenses this year.

How to invest an inheritance for a comfortable retirement
People who inherit a fortune from their loved ones may want to use it to secure their retirement, according to this article on Yahoo Finance/U.S. News & World Report. After receiving the bequest, they are advised to avoid making any hasty decision, assess their financial situation, and understand the kind of asset they inherit. They should also consider their risk tolerance when deciding how and where they invest the windfall, and determine the tax implications of their decision.

Mortgage and refinance questions that come up with retirement
Pre-retirees who consider getting a mortgage should understand that income, not assets, is what drives traditional mortgage loans, says an expert in Forbes. This means that pre-retirees can expect their buying power to diminish once they retire and shift from regular wage income to Social Security, pension, and portfolio income. “Some retirees are surprised to find that even if they have $1,000,000 in retirement savings and other accounts, the $40,000 they receive in annual Social Security and pension payments are what we use to make loan decisions with… asset based lending is a thing of the past and was a major contributor to the mortgage breakdown in 2008-2009.

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