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With Social Security Laws Set to Change,
It’s Time to Act—On Your 401(k)

On May 1, 2016, changes to Social Security laws will go into effect that will limit some beneficiaries’ ability to maximize their benefits by delaying retirement until age 70. [See note below.]

But wait! Before you stop reading because you think these changes only pertain a narrow category of workers/investors at or near retirement, the fact is, such changes should always remind us all to act. Certainly, those immediately impacted might want to make sure they don’t forego ten or twenty thousand additional dollars in retirement (every little bit helps), but for all those 61 years or younger, these changes ought to serve as a reminder that we need to act on other, much more significant, sources of income for retirement—that is, investments in 401(k) and IRA plans—and that indeed, these are only sources of income over which we have real control.

All workers should consider, specifically, the relative significance of different sources of income in retirement. If older generations thought of Social Security as a major source of retirement income, Millennials are learning to consider themselves fortunate if they ever see a dime from their Social Security contributions. With the current maximum income level pegged at $118,500, the average retiree will receive between $1,000 and $1,500 a month from the benefit, which, while not insignificant, likely pales in comparison to the monthly income most will need to maintain anything like their current standard of living.

There’s little doubt the next news we hear about Social Security will concern more restrictions or lower benefits in future years, and for those with rental property or with confident expectations of inheritance, such news may be met with indifference. But the rest of us should be reminded, more than ever, that we need to pay regular and close attention to our 401(k) or IRA investments, and adopt active strategies, attentive to the market, that can maximize our retirement savings.

Note: For a run-down of changes to the law, see Rachel Sheedy’s very helpful summary from Kiplinger’s Retirement Report 2015. Those already taking advantage of these provisions should certainly see a qualified financial advisor about what Sheedy calls the “fancy maneuvering” required to continue this strategy.

Kevin L. Coppola, President, Compass Investors, LLC

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