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August 2018 News

Planning Notes | Software | Events | Tech Tip  

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2.8% Social Security Cost-of-Living Adjustment ~ Best Practice

by Mark Snodgrass

Social security questions are frequent, so, while the 2019 Social Security Cost of Living Adjustment is news, it’s a good time to review reasonable relationships and assumptions. Handling social security increases correctly supports clearer illustration of clients’ financial picture over time.

2.8% Social Security COLA Estimated for 2019

U.S. Inflation Rate: According to the Bureau of Labor Statistics consumer price index, prices in 2018 are now 2.87% higher than prices in 2017. The dollar experienced an average inflation rate of 2.70% per year during this period. In other words, $100 in 2017 is equivalent in purchasing power to $102.87 in 2018. The 2017 inflation rate was 2.13%.

Social Security COLA rates are set annually in an effort to keep benefit payments aligned with the cost of living. The COLA percentages are largely based on previous year’s inflation as measured by the CPI-W, a wage earner model of changing costs. In most retirees’ experience, expenses for medicine and health care increase faster than average and comprise a significant part of the elderly’s budgets.

Long term retirement planning usually calls for Social Security COLA, pension COLA, and inflation rate assumptions to be closely related. Inflation assumptions of 2.7% to 3.0% are common. COLA assumptions in the same range, or just slightly lower keep the relationship between costs and benefit incomes over the length of retirement.

There are valid discussions about CPI-E, the consumer price index (elderly), being 0.2% higher than the CPI-W, and thus calling for higher inflation expectations for retirees. Some advisors lower Social Security COLA expectations the same amount as a different way of modeling potential erosion of benefit buying power. Other advisors lower the COLA expectation as a way of modeling hypothetical means testing or future benefit reduction.

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Software

Silver Online - Data Integration

Silver Online's latest release features new data integration with Redtail. Now advisors can import their Redtail database for new or existing clients. If you have any suggestions for future integration partners for Silver Online or TOTAL Online, let us know!

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Events

Expired Users - Special Offer

Interested in continuing deeper financial conversations with your clients? Now is a perfect time! Money Tree is offering a discount for customers that have not renewed, but would like to pick it up again. Call 541-754-3701 ext 308 to hear more about this offer!

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Tech Tip

Top 5 Input Mistakes to Avoid

Whether you're using Silver or TOTAL, we want you to save yourself a call to Money Tree's support team. These are the top 5 common data input mistakes in Silver and TOTAL

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