The prices of just about everything from groceries and gas to housing costs and medical care have been increasing steadily over the last year. And if you’re one of the 66 million Americans relying on social security benefits as a key factor in your retirement income, you’ve likely been feeling the financial squeeze the past few years.
According to a study by Ramsey Solutions, 40% of Americans are feeling the challenges of inflation followed closely by cost of living expenses.1 That’s where COLA comes into play. On October 13th, the Social Security Administration announced one of the biggest cost of living adjustments for social security beneficiaries in forty years.
Let’s dive into what this means and how this affects you and your retirement income.
What Is the Cost of Living Adjustment?
The cost of living adjustment (otherwise known as COLA) was put in place by the social security administration (SSA) in 1972 to “ensure the purchasing power of social security benefits wouldn’t be eroded by inflation.”2
Each year, the COLA increases depending on the Wage Earner’s Consumer Price Index (CPI-W) from July to September of the previous year. In 2022, the COLA was increased to 5.9%. And in 2023, it will rise to 8.7% to help seniors’ keep up with the rising costs of living. That will translate to an average of a $144.10 increase on your monthly benefits.3
If you’re expecting to receive social security this year, you don’t have to do anything different to receive your funds. Your increase will be dispersed to you with your January 2023 check.
Why Diversifying Your Retirement Income Is Important
For many retirees, social security benefits are a big deal. In fact, social security accounts for 30% of the elderly’s income.4 And for others, it accounts for more.
With rising costs of just about everything, retirees and future retirees should start thinking about how to diversify your retirement income. Sure, a cost of living adjustment of 8.7% is helpful to keep up with medical bills, groceries, and living expenses. But it shouldn’t be your only source of financial income.
Instead of relying on the Social Security Administration as your main source of income, it’s time to start financial planning. What can you do now to increase your other streams of income for retirement? Having a solid plan in place is key to making sure you don’t have to rely on the government (or COLA) for financial reassurance.
Here’s the bottom line: Your financial hope shouldn’t be in COLA, social security benefits, or any other government program to get you through retirement. Not only will that leave you financially strained, but it puts your hope in something that might fail. Having a solid retirement plan and source of income all comes down to financial planning. And no matter how old you are, whether you’re receiving social security benefits, or if you’re just starting the process . . . it’s not too late.
SageSpring Wealth Partners can help you come up with a retirement plan that works for you. One that doesn’t rely on cost of living adjustments to get you through the year. Contact an advisor in your area today and start working on a financial plan that works for you.
Sources:
1. The State of Personal Finance in America 2022, Ramsey Solutions
2. Cost-of-Living Adjustment, Social Security Administration
3. Press Brief, CPI-COLA Update, The Senior Citizens League
4. Social Security Fact Sheet, Social Security Administration
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