The Social Security cost of living adjustment, or COLA, is designed to help retirees combat inflation.  The SSA recently announced the improvement for 2020.  Spoiler alert:  This is an ice cold COLA.

Video: An Ice Cold COLA

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Every Year, Everything You Buy Costs More.

Every year, everything you buy costs more. That is the simplest way to explain inflation.  When we use the consumer price index, something you bought for $1.00 in 2010 would cost $1.18 today.

One of the key parts of Social Security has been the annual cost of living adjustment—or COLA. This has helped retirees adapt to the constant increase in prices.


This Year Expect an Ice Cold COLA

Social Security announced the cost of living adjustment for 2020,  and the COLA is ice cold. This year the increase is 1.6%  

For the average benefit, his translates to a monthly increase of $24. Unfortunately, Medicare premiums will also increase next year. The premium should go up almost $9. This means the average net increase from Social Security is only $15 per month.

Not Like It Used to Be

Before 2010, Social Security benefits increased by 3.8% per year. But over the last 10 years, the increases have been far more modest, averaging 1.4% per year.

The statistics don’t always reflect what we see when we go to pay our bills. Some goods and services increase at a faster pace than others. Medical costs are a good example. And as we get older, we tend to incur more medical expenses.

The government is considering a change in how they compute the Social Security cost of living adjustment. But as you know, there is little productive work getting done in Washington DC.

How Does This Impact Your Retirement?

Over the past decade, retirees have had to rely more on their savings to cover their cost of living increases. And we should expect that trend to persist.

Many expect the smaller cost of living increases to Social Security to continue. Likewise, many also expect bigger increases to medicare premiums. This combination results in you getting smaller net increases in your Social Security benefits.

We all need to account for this trend in our plans.  Our savings will be a key element to fighting the constant battle of maintaining our purchasing power.

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Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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