What the High Social Security COLA Could Mean for Your Retirement Finances
Social Security recipients will see a 5.9% increase in 2022 – the largest increase since 1982! This means that the average recipient will see a $92 a month raise starting next year. While this is good news, it’s important to consider what this high Social Security cost-of-living adjustment (COLA) could mean for your overall retirement finances.
Why is This Year’s COLA So High?
This year’s 5.9% cost-of-living COLA is meant to offset the increased inflation we’ve seen this year. The year-over-year inflation rate for September was 5.4%, and no one knows when it will return to more normal levels. Some economists don’t think sustained inflation is a threat, but retirees need to be concerned about even moderate inflation. A 2% inflation can eat away at your retirement savings significantly over the course of retirement: For example, after 20 years with a 2% inflation rate, $1,000,000 would only have the buying power of $672,971.
Do Social Security Benefits Really Keep Up with Inflation?
While cost-of-living adjustments are meant to make benefits keep pace with inflation, this may not be the case. The Senior Citizens League estimates that a Social Security benefit has lost a third of its buying power since 2000. This has happened mostly because benefit increases have not kept up with the increasing cost of prescriptions drugs, food, and housing. Keep in mind that some years, the COLA is 0%.
Are You Exposed to Inflation Risk?
We all understand why it’s important to protect our nest egg from market loss, especially around retirement. There are reasons why we could see a market correction, including high inflation. We can immediately see the effects of market loss on our wealth, but what about the eroding effects of inflation over time? For retirees who need to make their money last for the rest of their lives, inflation is an important risk to work to mitigate.
What Can You Do?
Maximizing your Social Security benefit can mean more retirement income for the rest of your life. We can help you choose how to claim based on your specific situation because everyone’s claiming strategy will look a bit different. We can help you create additional retirement income, work to protect your savings from inflation, and mitigate market risk. A solid financial plan addresses all of these areas of retirement planning and more. Click HERE to schedule your complimentary strategy session with us at Barnett Financial and Tax as the first step.