With the stock market down 25% over the past year and Social Security payments rising to a maximum benefit of $4,485 in January, even wealthy clients’ are starting to pay much closer attention to Social Security, advisors say.

Simply put, rising benefits gives investors more options when creating an optimal retirement funding strategy.

“If you’re a millionaire and have most of your wealth invested and you’ve seen that wealth go down in the stock market, Social Security is coming in as an important source of income in your overall plan," Susan Mitcheltree, a partner at Berman McAleer in Baltimore, said.

The recent cost of living adjustment (COLA) “is a considerable increase from what we’ve been seeing, especially from the years when we didn’t have any meaningful increases because inflation adjustments were so low. In the inflationary environment we’re in, we needed to see it come up,” Mitcheltree said.

The Social Security Administration announced the 8.7% COLA on October 18. It's the biggest increase since 1981, when the COLA hit 11.2%, and reflects ongoing inflation in the U.S., which was down slightly to 8.3% in October based on a rolling calculation of prices over the prior 12 months.

Social Security benefits increasing significantly gives investors more options when it comes to deciding what assets to tap first to maximize and extend the longevity of a retirement portfolio, advisors said.

Especially with the market in decline, “Social Security is the only instrument that lasts as long as you do, goes up with inflation as we just saw and there are no commissions or fee. You can never run out,” Jeremy Keil, founder of Keil Financial Partners in New Berlin, Wisc., said.

Keil said his firm always runs the numbers to show clients all of their options when it comes to deciding when to start benefits. “If you can wait until age 70, you’ll be able to grow your benefits by 8% a year, which means you’ll earn roughly an extra $100,000 tax-free by age 70, so we very much encourage waiting on a higher benefit,” Keil said.

But for couples who both have earned Social Security benefits, “a lot of times we like to let the opinions and feelings of the client dictate what they want to do with the smaller benefit,” Keil said. There are “definitely” clients who feel they do not want to cash in their investments with stocks down 25%, he added.

“If your portfolio is down 25% and it gets back to even in three years, that will beat even the 8% growth in Social Security benefits that will accrue if you wait until age 70 to begin taking benefits,” Keil said.

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