Before COVID, the annual October ritual of announcing the following year’s Cost of Living Adjustment (COLA) for Social Security recipients was a sleepy event. But since the inflationary spike that …
Before COVID, the annual October ritual of announcing the following year’s Cost of Living Adjustment for Social Security recipients was a sleepy event. But since the inflationary spike that started in 2021, millions have been waiting breathlessly for the news.
The problem with COLA is that the future year’s increase is based on what happened in the previous year – and we know that conditions can change quickly. Earlier this year, the nonpartisan Senior Citizens League released research that found that older Americans have struggled to keep pace with inflation. “The buying power of Social Security benefits finds that older adults who retired before 2000 have lost 36 percent of their buying power and would need an extra $516.70 more per month than they are currently getting to maintain the same level of buying power as in 2000.
For those nearing retirement, the takeaway from the past five years is to be careful about life decisions that are predicated on best-case assumptions. In the 10 years leading up to the pandemic, I would hear from many who were crunching retirement numbers, presuming that inflation would remain at 2% for decades in the future. When I would suggest choosing a higher rate of inflation, “just in case,” I was tagged as a Debbie Downer.
Not only does this allow your nest egg more time to grow, it also means that you might be able to wait to claim your Social Security benefit beyond your Full Retirement Age to age 70, when you can receive credits for delaying filing that can boost retirement savings significantly.