Social Security recently announced some good news for retirees. The cost-of-living adjustment (COLA) in 2019 will be the highest in seven years. Next year’s benefit increase of 2.8 percent is significantly higher than 2018’s 2 percent raise. In fact, other than 2012, there hasn’t been an increase of more than 2 percent in the past 10 years. There weren’t any COLA increases in 2010, 2011 or 2016.1
The 2019 COLA is a positive development for seniors as it means that they get a much needed pay increase. The purpose of COLAs is to help retirees keep up with inflation and afford increasing prices for things like food, energy, housing and more. Social Security bases its COLAs on a broad version of the consumer price index (CPI).1
COLA Doesn’t Always Match Retiree Inflation
An increase in Social Security benefits is always good news. However, Social Security benefit increases usually aren’t enough to help most retirees keep pace with inflation. Consider that Social Security probably isn’t your primary form of income. Ir likely makes up just a portion of your overall cash flow. Remember, the COLA only applies to Social Security benefits; not all your income.
Many people also debate whether the CPI that is used by Social Security is appropriate for retirees. Social Security uses the CPI-W, or consumer price index for urban workers, to estimate COLA.1 The problem is that the CPI-W tracks costs for workers, not for seniors. Many retirees face different costs than the average worker faces. For instance, retirees may have increased health care and housing costs. The CPI-W doesn’t weight those areas heavily, so it may not be an accurate gauge for retirees.
How to Keep Pace With Inflation
Inflation is inevitable throughout a long retirement, and it can have a big impact on your standard of living. Even a moderate amount of inflation can cause prices to double over several decades. To maintain your lifestyle, you’ll need to do more than rely on Social Security benefit increases.
You may want to talk to a financial professional about strategies to increase your income over time. For example, you can use an annuity to generate a guaranteed* income stream. Often, the annuity is guaranteed* for life, regardless of market performance.
You also may want to look at long-term care insurance with an inflation protection rider. Long-term care can be a sizable expense, and it usually isn’t covered by Medicare. Also, costs are rising every year, often at a higher rate than inflation. An insurance policy in which the benefits are aligned with inflation could help you keep up with rising costs.
Ready to develop your retirement inflation strategy? Let’s talk about it. Contact us at Heritage Financial North today. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
*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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