Make the most of your cost-of-living adjustmentFinances
If you are a retired teacher or police officer who receives 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 there have been three years (the latest was 2015) 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 cover basic living expenses, then your COLA increase will likely just be absorbed into your monthly budget to 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:
- Pay down debt.
If you’ve carried debt into your retirement years, you’re not alone. A report from the National Council on Aging found 60 percent of households headed by someone age 65 or older had debt. The median debt for households with debt in this age group was $31,300 in 2016 — more than 2.5 times the amount for 2001. Putting 2‑3 percent of your pension benefit toward retiring debt can make a big difference over time.
- 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. It’s 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.
- Give back.
Whether you choose to seed a college fund for your grandkids or donate to a favorite charity, research shows that spending money on others may bring your more happiness than spending it on yourself.
- 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 planning.
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. Your financial professional can help you plan for whatever will best suit your financial goals and interests for your retirement years.
This information is brought to you by Athene — where unconventional thinking brings innovative annuity solutions to help make your retirement dreams a reality.