Money matters: Social Security updates
Editor’s note: Money Matters is a monthly column exploring pertinent financial issues for older adults in or near retirement. In this installment, columnist Jenny Callison shares shares info about this year's increase in Social Security payments.
This year, Social Security recipients will notice a small bump in their monthly payments. The 2024 cost of living adjustment (COLA) clocks in at 3.2%.
“While this year’s COLA is less than last year’s, which was 8.7%, it’s still above the 20-year average of 2.6%,” said Kelly Luckhaus, a certified financial planner with Edward Jones in downtown Wilmington. In 2023, the Social Security Administration boosted the COLA to help recipients deal with higher-than-normal inflation, she added.
With inflation down significantly, those recipients may also see their expenses leveling off. Now, at the beginning of a new year, they can decide how best to take advantage of that extra income.
“Any time there is an adjustment in a household’s income or expenses, it’s a good time to take a look at your cash flow,” Luckhaus said, adding that, while most people tend to spend about the same amount each year for essential and nonessential expenses, she recommends a check-in and check-up.
“Revisit your household’s cash flow. Are there any gaps that need to be filled? Do you need to increase your emergency fund? Is there any bill that could get paid off or paid down with increased monthly payments?”
One increased monthly payment that has automatically been calculated into Social Security recipients’ 2024 monthly payout is for Medicare Part B premiums, which have risen from $164.90 per month to $174.70 per month.
But most people will still see a modest increase in their monthly benefit. Officials at Edward Jones offer four strategies for making that COLA income work most effectively.
• Offset higher expenses: If some budget item has increased, or there’s an unexpected expense, retirees can direct their COLA to pay for that.
• Build cash reserves: Financial experts say retirees’ portfolios should have about a year’s worth of living expenses in cash. That COLA “bonus” could strengthen that reserve fund or could be earmarked for an emergency fund, which experts say should equal three-to-six months’ worth of expenses.
• Reduce portfolio withdrawals: Edward Jones advisers point out that the rate at which retirees withdraw money from their portfolio is the biggest determinant of whether their money lasts through retirement. Using their COLA increase to reduce the amount they withdraw each month could be a wise move, they say.
• Give to others: If retirees don’t have a need for the COLA increase, they can use it for charitable gifts. Those gifts can also benefit the giver, Luckhaus said.
“If you are charitably inclined and don’t need to use the increase in your Social Security payment to pay the bills, look at making a Qualified Charitable Distribution (QCD) out of your [IRA or retirement plan] Required Minimum Distribution (RMD),” she said. “A QCD decreases your tax liability.”
Make the most of the 3.6% COLA this year, but don’t count on the same amount for the future, Luckhaus advised. Depending on the rate of inflation during 2024, the COLA percentage could fall or even take a hiatus: Because of low inflation, there was no COLA in 2010, 2011 or 2016.
