Social Security Gets a Cost of Living Increase

Filed under: retirement planning

Social Security CardBeginning January 1, Social Security benefits recipients will receive a slightly larger check, due to the annual Cost of Living Adjustment (COLA). This year checks will increase by 1.7 percent, making this the third year in a row that COLA has been calculated at less than 2 percent.

So what does this mean for the average retired Social Security recipient?

  • the average monthly benefit for a single retired person will rise from $1,306 to $1,328 – an increase of 22 dollars
  • the average monthly benefit for a retired couple go from $2,140 to $2,176 – giving the couple 36 dollars more per month

Is it enough?

Some seniors believe politicians are responsible for deciding upon cost of living increases, but this is a myth. Social Security ties COLA to the Consumer Price Index, which tracks inflation via an increase in prices of goods and services. When the Consumer Price Index indicates a period of inflation, Social Security benefits are increased accordingly. For better or worse, COLA depends entirely upon this formula, not upon votes in Congress.

But critics of the formula say that the Consumer Price Index is not an accurate measure of the average retiree’s cost of living. While the index primarily reflects an urban wage-earner’s spending habits, those expenditures may vary wildly from the average senior citizen’s budget. The question raised about COLA is whether it should be adjusted to better reflect the cost of items like health care, prescription medications, and food.

What should seniors do now?

Like anything else in Washington D.C., changes to Social Security and COLA will take time. For now, it’s important to remind retirees that they shouldn’t count upon Social Security to provide all of the income needed in retirement. It’s important for them to create a careful strategy with their tax professional, and reduce their tax burden as much as possible. Meanwhile, seniors should talk to their financial advisors about building a secure income stream and a realistic budget for retirement.

If you have any questions about Social Security, or retirement planning in general, call John Dubots at Dubots Capital Management. His number is 951-699-1502 or 888-605-8363. Or, if you prefer, you can email John at info@capitalmanagement.com