Social Security is a critical piece of the income puzzle for most retirees. In fact, half of married retirees and nearly 70% of unmarried retirees rely on Social Security for more than 50% of their retirement income.1
Your Social Security benefit amount is based on a few factors, including your career earnings and your age at the time you file for benefits. However, your benefit amount isn’t locked-in forever. It often increases each year because of something called COLA.2
COLA stands for “cost-of-living adjustment.” It’s an annual increase in the benefit amount to help recipients cover increases in their cost of living. In 2020, COLA was 1.6%, down from a 2.8% increase in 2019.2
Since 2000, Social Security benefits have increased by a cumulative 53% because of COLA. The problem? Retiree spending has increased by more than 99%.2 While COLA can be helpful, it often isn’t enough to match inflation. In fact, since 2009, COLA has averaged only 1.4% annually.2
Fortunately, you can implement other strategies to protect your spending power and combat inflation. Below are a few ideas to consider:
Rely on other sources to cover healthcare costs.
Healthcare is one of the biggest drivers of inflation for retirees. In the past 20 years, Medicare Part B premiums have jumped 218%. Out-of-pocket prescription drug costs for retirees have increased 252%. Social Security benefits increased only 53% over the same period.2
If the past 20 years are any indication, you can’t count on Social Security adjustments to offset increases in healthcare spending. You may want to consider using alternate strategies, like funding a health savings account (HSA) that you can use in retirement for out-of-pocket costs.
You also may want to explore various Medicare Advantage policies. These are Medicare policies offered through private insurers. They often cover the same services as traditional Medicare, plus enhanced services. They also may reduce your out-of-pocket costs. A financial professional can help you determine which policy is right for you.
Continue to grow your assets.
You may be tempted to become more conservative in retirement. After all, you don’t want to lose what you worked so hard to accumulate over several decades. Adjusting to a more conservative allocation may be the right move for your needs and risk tolerance. However, it’s also important to continue to grow your assets.
Growth can help you increase your income over time and keep up with inflation. You can give yourself a personal COLA with increased distributions from your retirement accounts. There are a wide range of strategies you can use to potentially grow your assets, but also minimize your exposure to risk. Again, a financial professional can help you implement the right strategy for you.
Ready to develop your retirement income plan? Let’s talk about it. Contact us today at Emerald Blue Advisors. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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Investment advisory services are offered through Emerald Blue Advisors, Inc., a registered investment adviser offering advisory services in the State of California and other jurisdictions where registered or exempted. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted. Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.
Rola Hajeb was inspired to join the financial industry back in 1997. Trustworthy and empathetic, she is focused and committed to helping her clients.