Roller coasters are fun. Roller-coaster inflation? Not so much.

Consumers got a welcome respite from rising inflation in June, thanks largely to plummeting energy prices, with the cost of crude oil falling 25% during the month. That trend has reversed in July, thanks in no small part to renewed conflict in the Middle East that seems unlikely to end soon. It’s bad news for consumers in general, but there’s one silver lining for Social Security beneficiaries. Inflation data from the third quarter is used each year to set their cost-of-living adjustment, so higher energy prices in the next few months could boost benefit checks for 2027.

“Inflation is very volatile at this point, particularly in the way energy prices are affecting the COLA projection,” said Martha Shedden, president of the National Association of Registered Social Security Analysts. “There were earlier estimates as high as 4.7%, but I think that’s probably outdated at this point.”

Up and Away?

Just how high could the COLA be next year? The Senior Citizens League currently projects a 3.8% benefit boost, which would be one percentage point higher than this year’s increase of 2.8% and might increase meaningfully if inflation spikes and remains high through the end of September. That has happened in the not-too-distant past:

• Inflation pressures stemming from supply chain issues and other causes delivered a COLA of 8.7% for 2023.
• The highest COLA in history was 14.3%, implemented in 1980 in response to severe stagflation and the energy crises of the late 1970s.

For added context, a 3.8% COLA for next year would be above the 2.6% average COLA over the past 20 years. If it took effect today, average benefits would rise from $1,937.53 to $2,011.15.

A (Very) Long Shot. In related Social Security news, US Rep. John Larson of Connecticut has reintroduced a bill that would provide relief to seniors losing buying power to high inflation by raising benefits 2% and setting the new minimum benefit at 125% of the federal poverty line. Additionally, the Social Security 2100 Act would increase the Social Security payroll tax and expand it to cover income over $400,000, which Larson said would shore up its trust fund for an additional 32 years.

Larson’s proposal enjoys support from the Senior Citizens League and other consumer advocacy organizations, but immediate passage isn’t likely. GovTrack.us gives it a 0% chance of passage in the current Congress.

“The bill can still do some good by keeping Social Security solvency in the public conversation,” Shedden said. “It also highlights how we can’t fix Social Security with one policy. It will take a group of changes and compromise from all sides.”

Gen X has a lot on its plate, with many in the so-called sandwich generation caring both for aging parents and children who are entering adulthood at a time when inflation is seriously squeezing Americans’ pocketbooks. Ironically, the adults doing the most financial heavy lifting for others have the least protection themselves, according to new survey data from the digital estate planning platform Trust & Will. Gen X sits at the bottom of the preparedness table across every foundational estate planning document the survey tracked, heightening the risks of fallout from an unexpected death or disability.

Financial advisors are well positioned to help, said Trust & Will CEO Cody Barbo, and they can start by reframing the common assumptions that estate planning is a “retirement thing” or only for the ultra-wealthy. “Estate planning isn’t about how much you own,” Barbo told Retirement Upside. “It’s about who gets to speak for you when you can’t. Who cares for your children? Who makes medical decisions? Who handles your affairs?”

A Generational Gap

Gen Xers are in the worst shape when it comes to estate planning, but they’re not so far behind other demographic groups:

• Some 56% of U.S. adults have no estate planning documents, with just 26% having a will in place despite 73% saying estate planning is important to them.
• More than 60% of Gen X have zero estate planning documents, followed by millennials (58%), Gen Z (54%) and baby boomers (48%).

The recommended course of action is to start with a will, Barbo said, even if people believe their assets are modest. A will identifies who cares for their children, who handles their affairs and who receives what they own. From there, people should consider adding a medical power of attorney and an advanced health care directive, which ensures someone they trust can make medical decisions if they become incapacitated. In cases where greater wealth is in question or there are children with special needs or disabilities, the establishment of a trust can make a lot of sense.

A Shifting Tide? About half of Americans say their financial anxiety increased over the past 12 months, a trend that has historically heightened interest in getting affairs in order, though it appears to be having less of an effect now, according to the Trust & Will survey. Anxiety alone does not move people to act. It has to be paired with a clear, accessible path forward, which is where advisors can shine.

“The advisor now edges out the attorney as the preferred estate planning channel,” Barbo said. Specifically, 27% would prefer to create or update an estate plan with a financial advisor versus 24% with an estate planning attorney, while 19% want both involved.

For some retirees, I’ve Been Everywhere isn’t just a great Johnny Cash song but also an aspirational anthem.

A new survey from International Living found that 83% of people interested in retiring abroad are considering living in more than one country. Only 16.5% said they want to retire permanently in one place. While this approach offers many benefits, like a lower cost of living, better weather or simply adventure, not having a permanent residence complicates financial planning, and advisors should make sure their clients understand the best way to achieve their goals.

“People have a greater sense today than they did, say, a decade ago, about what the possibilities could be,” said Jennifer Stevens, International Living’s executive editor. “As people are becoming increasingly interested in their overseas options, I think it behooves advisors to get educated about where the pitfalls are and what they can do to help their clients keep more of their hard-earned money.”

Home Is Where … You Pay Taxes?

One of the biggest challenges of a nomadic retirement is residency. Because these retirees keep moving instead of settling down, they still owe American taxes. Retirees from a high-tax state should strongly consider establishing residency in a state with lower taxes before they adopt an itinerant lifestyle, said Andrew Fisher, practice leader for cross-border planning at Cerity Partners. He also flagged several other common pitfalls:

• It can be difficult for clients to access funds abroad without a foreign bank account, so he recommends finding a debit card that allows withdrawals with minimal fees and restrictions.
• Retirees should know the tax residency rules where they’re staying, so they don’t unwittingly trigger tax liability by remaining in one place too long.

“If a client unintentionally becomes a tax resident of another country, they may find that their US retirement distributions, investment income or even Roth IRA withdrawals are treated very differently than they expected,” said Francheska Ruiz, a CFP at Tobias Financial. “That’s why one of the first conversations I have isn’t just where they want to retire, but how they plan to live throughout the year.”

Still Got Gas in the Tank. Fisher noted that people who choose this lifestyle have often retired younger. “Maybe they didn’t really get to travel a lot during their working years, so it’s kind of making up for lost ground. Sometimes there’re also people who know they want to experience something different, but they actually don’t know exactly where,” he said. “They’re looking at almost an extended vacation where they just get to go on an adventure and experience lots of different places, and maybe see if one eventually fits.”