Many people on the verge of retirement lack knowledge about how Social Security works. According to the Social Security Administration, the estimated average monthly benefit paid to retired workers in 2012 factors out to $1,186 (without the 3.6 percent COLA, or cost of living adjustment) and $1,229 (with the COLA hike). For an older widow or widower, the monthly benefit is calculated at $1,143 (before COLA) and $1,184 (with the COLA increase).
For a disabled worker, the monthly benefit is $1,072 (without COLA) and $1,111 (with COLA)
In 2010, the average monthly benefit paid to retired workers was $1,160 (about $14,000 annually). The average benefit was somewhat smaller for disabled workers ($1,064) and for widows and widowers age 60 or older ($1,123).
Let’s compare those numbers with the 2012 federal poverty guidelines. For a family of three, it’s 19,090; for a family of four it is $23,050 (U.S. Department of Health and Human Services).
Social Security is the main source of income for most beneficiaries 65 years of age or older. The benefits account for half or more of the total income for one out of two beneficiary married couples and 72 percent of non-married beneficiaries. For all but the highest-income, or 20 percent of, older Americans, Social Security is the largest single source of income.
Beyond Social Security
So how can retirees increase their income beyond Social Security? For millions of Americans, a life annuity can provide safety of principal and tax deferral. However, one disadvantage inherent in most life annuities is their inability to keep up with inflation over the long term.
One way that life annuity buyers can deal with this problem is to purchase a cost-of-living rider in the contract. This rider is designed to ensure that the income from the annuity stays abreast of the rate of inflation over time. However, there will be a trade off in that less income may be received today.
COLA riders can come in different forms, with some riders having a specific cost, while others merely affect the dollar amount of the monthly payout (i.e., less today and more later). Different rates of increase are also generally available, depending upon how much inflation protection the life annuity contract holder desires.
Now may be the time to help your senior clients protect their assets, secure their monthly disposable income, increase the benefits they have for their health insurance and ensure they don’t leave a burden to their family.