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Make the most of your cost-of-living adjustment

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If you are retired and receiving a pension or a retiree receiving Social Security benefits, you can usually look forward to a cost-of-living adjustment (COLA) at the start of each year.

COLAs are generally determined by changes in the Consumer Price Index (CPI). For Social Security income benefits, automatic annual COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI that measures the average change in prices paid by these consumers for certain goods and services.

Most years, the annual increase in Social Security benefits has been somewhere between 1 and 4 percent, although many Americans saw an 8.7 benefit increase in 2023. There have also been years since COLAs were adopted in 1950 where there has been no increase at all.

If you need your monthly pension or Social Security check to help cover basic living expenses, then your COLA increase may likely just be absorbed into your monthly budget to help cover increased costs for things like utilities, groceries and gas for your car. But if you don’t need it for basic expenses, here are four tips on how you can put your COLA to use:

1. Pay down debt

If you’ve carried debt into your retirement years, you’re not alone. Since the 1990s, the number of older Americans with debt has been on the rise, largely driven by increasing mortgage debt. Putting a percentage of your pension benefit toward paying down debt can make a big difference over time.

2. Pad your emergency fund

If your car won’t start, your furnace breaks down or you have an unexpected medical or dental expense not covered by Medicare, an emergency fund can be your saving grace. According to the Consumer Financial Protection Bureau, many older adults report having unpaid medical bills despite having comprehensive medical insurance. Creating an emergency fund can be especially important if you need your monthly Social Security check to pay your bills and don’t have extra funds to draw from for unexpected expenses.

3. Give back

Whether you choose to seed a college fund for your grandkids or donate to a favorite charity, you may feel happier donating money than spending it on yourself. Plus, there are often tax deductions for charitable giving, so you can talk to your tax advisor and financial professional about charitable contributions and the rules around giving to charity. 

4. Make progress toward financial goals

If you don’t need your COLA to pay basic expenses, don’t have any debt, have an emergency fund and were able to give some of your money away — you’re doing great! Now may be the time to work with your financial professional to look at your overall retirement plan and decide if everything is still on track. If you’re in good financial standing, you may be able to put those extra funds toward a new financial goal or one that has recently taken priority. 

Depending on your circumstances, your financial professional may suggest strategies to help with financial goals such as leaving an inheritance or receiving guaranteed income for life with an annuity. Or maybe you can afford to take that bucket list vacation or pursue other personal passions. Working with your financial professional can help you plan for whatever will best suit your financial goals and interests throughout your retirement years.


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Not affiliated with or endorsed by the Social Security Administration or any governmental agency.