Flat COLA could force seniors to plunder portfolios

In another example of the “new normal,” the Social Security Administration announced that due to the low rate of inflation, the 58 million Americans who get Social Security checks won't receive a cost-of-living adjustment in 2011. On average, retirees collect an annual benefit of around $14,000. That's hardly a fortune, to be sure. But advisers say even affluent retirees count on their government checks as a vital part of their income stream. And a second year without a cost-of-living increase means that some clients will have no choice but to increase their withdrawal rates from their investment portfolios, said Jim Meysenburg, an adviser with Sonas Financial Group Inc., which manages about $55 million in assets. Social Security income makes up about 50% of his clients' income, he said. “This is a concern for clients,” he said. “I'll walk them through different rates of withdrawal and review the portfolio. But it means they're going to have to take more money out.” Even his clients with $1 million in assets depend on Social Security income each month as a crucial part of their paycheck — especially because of the steep medical costs his clients face each year. In other cases, adviser Rob Siegmann, chief operating officer and senior adviser with Financial Management Group Inc., said he will advise retirees to reduce spending in any way they can. “Our clients will want to cut back on spending before they'll increase their withdrawal rate,” said Mr. Siegmann, whose firm manages $175 million in assets. In a statement, Cathy Weatherford, president and chief executive of the Insured Retirement Institute, said the decision not to increase Social Security next year shows the importance of saving for retirement. “Americans have relied on Social Security as their primary source of retirement income for generations,” Ms. Weatherford said. “The reality is that the system is not as secure as it once was believed to be. This underscores the importance of retirement planning for all Americans to secure their future with truly guaranteed retirement income.”