Social Security COLA Is Increasing: What It Means for Your Retirement

​Social Security is raising benefits. In a recent announcement, the Social Security Administration said benefits will increase 2.8 percent in 2019. This is the largest cost-of-living adjustment (COLA) in more than a decade. Last year benefits increased only 2 percent. In fact, there weren’t any benefit increases in 2010, 2011 or 2016.1
 
Social Security offers benefit increases to help recipients keep pace with inflation. It’s designed to help seniors keep up with rising costs for things like groceries, housing, energy and much more. The cost-of-living adjustments are based on a broad version of the consumer price index (CPI).

Cost-of-Living Adjustments May Not Be Accurate for Seniors
 
An increase in benefits is always a welcome development. However, you may not want to count on a Social Security benefit increase as your only strategy to keep up with inflation. If you’re like many retirees, Social Security accounts for only a portion of your income. The benefit increase may apply to your Social Security payments, but it doesn’t mean your total retirement income will increase.
 
There’s also debate about Social Security’s COLA formula and whether it’s appropriate for retirees. Social Security relies on the CPI-W, which is a price index for urban workers.

Retirees aren’t workers, however, and they don’t have the same expenses as workers. Many retirees spend much more of their income on health care than the average worker does. They also may face increased costs for housing, especially if they’re staying in an assisted living facility. The CPI-W doesn’t account for this increased spending on health care and housing, thus the inflation rate may not be aligned with the average retiree’s lifestyle.

Inflation Strategies
 
Fortunately, there are strategies you can implement to increase your income and keep pace with inflation. One is to maintain a long-term plan that reflects how long you may be retired. If you retire in your mid-60s, you could live in retirement for several decades. Your financial strategy should account for longevity.
 
There are also tools you can use to increase your income. For instance, consider annuities that can generate guaranteed* lifetime income streams. Some of them offer growth potential and the ability to lock in higher income amounts over time.
 
You also may want to consider long-term care insurance with an inflation protection rider. Long-term care is a very real threat for many retirees, and the costs are rising every year. An insurance policy with an inflation rider will increase your benefit so it keeps pace with rising costs. When you need long-term care, the insurer will pay some or all of the expense.

Ready to develop your retirement inflation strategy? Let’s talk about it. Contact us at Thomas Financial today. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
 
1https://www.ssa.gov/cola/
 
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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