David Lerner Associates: 2013 Social Security COLA Less Than Half of 2012 Amount
The annual COLA is intended to help Social Security payments keep up with the rising cost of consumer goods and services due to inflation. The Social Security COLA is based on the percentage change in the Consumer Price Index for Urban Wage Earners (CPI-W) from the third quarter of the previous year to the third quarter of the current year.
According to David Lerner Associates Branch Manager Michael Cody, some seniors are wondering why next year’s COLA will be so low, given the rising cost of many everyday expenses like gasoline, food, utilities and healthcare. “One reason is because the CPI-W includes consumer items whose prices are less volatile than gasoline and groceries—appliances are one example. The CPI-W also includes some items whose prices are actually falling.”
As a result of this relatively low Social Security COLA, some retirees may find it more difficult to stretch out their money in order to meet their monthly expenses next year—especially those who live on fixed incomes. According to Cody, one option for some retirees may be to try to obtain a higher yield on their investments. “Doing so, however, could require moving further out on the risk spectrum or sacrificing liquidity—neither of which may be ideal for many retirees.”
Faced with this scenario, some retirees may simply have to try to adjust their spending and budget. You can get a head start on this by determining what your Social Security benefit amount will be next year based on the 1.7% COLA. Then compare this amount with your projected monthly expenses next year, and look for ways to shave some expenses if the numbers aren’t adding up.
Maybe you’ll need to cut back on eating out or entertainment, or try to cut your grocery bill by clipping more coupons, shopping more carefully or shopping at a discount grocery store. You may also be able to reduce the miles you drive by planning your trips more carefully, and thus reduce your gasoline expenses.
“It’s possible that you might have to consider returning to work, even if just on a part-time basis to help supplement your fixed retirement income,” says Cody. Of course, this assumes that you are physically able to work and can find employment. “However, this option could turn out to be a blessing in disguise, as some retirees have found that returning to the workforce helps them stay busy and keeps their mind sharp.”
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates,Inc. (DLA). This material does not constitute an offer or recommendation to buy or sell securities and should not be considering in connection with the purchase or sale of securities. Member FINRA & SIPC.