If you are retired and currently receiving Social Security benefits, you may be anticipating changes in your financial situation in the upcoming months. The Social Security Administration customarily makes periodic adjustments to the payments it disburses to beneficiaries to account for shifts in prices and inflation. These adjustments, known as Cost-of-Living Adjustments (COLAs), are usually unveiled in October and put into effect in January.
In 2023, the COLA saw a substantial increase of 8.7%, marking the most significant adjustment in over four decades. For Social Security recipients who were previously receiving $2,000 per month, this meant a boost of $174 ($2,000 x 0.087), resulting in a new monthly total of $2,174. Over the course of a year, this adjustment equated to an additional $2,088 in annual income ($174 x 12).
Maximizing the Benefits of Your 2024 Social Security COLA Increase
However, for the year 2024, the COLA is projected to be less substantial due to lower inflation rates in 2023 compared to the previous year. According to estimates from the Senior Citizens League, a nonpartisan organization advocating for seniors, the COLA for 2024 is expected to be 3.2%. Nevertheless, individuals reliant on a steady income recognize that any adjustment in their payments warrants a closer examination of their monthly financial plan. This presents an opportunity to alleviate financial strain or explore investment options with the aim of accruing higher interest.
Consider the following suggestions to guide your decisions regarding the additional funds resulting from the Social Security COLA in 2024:
- Prioritize covering essential day-to-day expenses, ensuring your basic needs are met.
- Consider using the extra money to reduce any outstanding debts, such as credit card balances or loans, thus improving your financial standing.
- Explore opportunities to save or invest the surplus income for future financial security, taking into account your long-term goals.
- Allocate funds to enhance your health and well-being, such as investing in preventive healthcare measures or fitness programs.
- Allow yourself occasional small indulgences or treats to improve your quality of life and reward yourself for your hard work and dedication.
- Consider giving back to those who have supported you throughout your journey, demonstrating your appreciation for their assistance.
The additional income from the 2024 Social Security COLA offers a chance to fine-tune your financial strategy and prioritize your well-being, providing a measure of financial flexibility and security.
Addressing Basic Living Costs
As inflation continues to drive up prices, meeting your monthly expenses may have become increasingly challenging, making the 2024 COLA a valuable supplement to your budget. Brandon Robinson, President and Founder of JBR Associates in Plano, Texas, advises, “The primary guideline is to ensure that your routine expenditures are adequately supported by a dependable income source.” Apart from Social Security benefits, you may also have income sources like annuities or distributions from retirement accounts that can assist in covering essential necessities.
In case your finances have been stretched thin in recent times, you might have accumulated credit card debt or taken out loans. Roger Fishel, a financial advisor and retirement coach based in Orlando, Florida, recommends, “Give top priority to settling these debts, beginning with those that bear the highest interest rates.” By lowering your debt load, you’ll not only cut down on interest expenses but also enhance your overall financial well-being.
Saving or Investing for the Future
For those individuals who haven’t yet established a financial safety net equivalent to three to six months’ worth of living expenses, this is an opportune moment to work toward that objective. JB Beckett, the founder of Beckett Financial Group in West Columbia, South Carolina, suggests, “If retirees find that the extra COLA isn’t necessary to maintain their current lifestyle, setting aside these additional funds for unforeseen circumstances can serve as a valuable defense against future inflation.” Building such a financial cushion provides a comforting sense of security should the need arise.
Various account options are available for creating an emergency fund. “You can opt for a high-yield Certificate of Deposit (CD), a Treasury Inflation-Protected Securities (TIPS) account, or a Multiyear Guaranteed Annuity (MYGA) if you don’t anticipate an immediate need for the funds,” advises Robinson. TIPS function as bonds designed to mitigate the erosion of purchasing power, while MYGA offers a fixed interest rate guarantee for a specific period, typically three or five years, potentially yielding returns in the range of 4% to 6%, depending on the terms. Alternatively, you might consider placing the funds in a brokerage account or initiating a Roth IRA for potential long-term growth.
Invest in Your Health and Well-Being
Consider allocating these additional funds towards enhancing your health and well-being. You can explore options such as buying wholesome groceries for home-cooked meals, investing in equipment for engaging in physical activities like cycling, or even inviting friends to join you at a wellness center for group fitness classes.
Additionally, it’s prudent to review your Medicare plan and assess the coverage provided by your current policies. You may decide to allocate the extra funds towards expanding your health coverage. If you currently lack a prescription drug plan, this could be an ideal time to acquire one to better manage your healthcare needs.
You might have been holding off on acquiring a new appliance, improving your phone plan, or embarking on a brief getaway. These extra funds could offer you the chance to make such indulgent purchases. Roger Fishel advises, “Maintaining a harmonious blend of prudent financial decisions and savoring life’s small joys is crucial, provided it aligns with your broader financial strategy.” Consider treating yourself to a weekly dinner outing at a nearby restaurant where you can gather with friends, striking a balance between responsible financial choices and enjoying life’s little luxuries.
If you find yourself in a position where the additional funds are not immediately required, contemplating ways to give back to your community can be deeply rewarding. According to Roger Fishel, “For retirees who harbor a desire to make a positive impact, directing the extra funds from the COLA towards charitable endeavors can be a fulfilling choice.” He suggests identifying causes that resonate with you personally and offering your support to organizations that reflect your values. This could include educational institutions you attended or foundations affiliated with your former workplace. Additionally, if you’re seeking more social engagement, you might consider volunteering your time as a means to both contribute to a cause and connect with others in your community.