It seems that no matter what happens with the economy, prices continue to rise, and year after year, the purchasing power of the dollar drops. Much of this has to do with inflation, and unfortunately, inflation can take a huge bite out of your ability to utilize your income to its maximum potential after leaving the workforce. Inflation has become a real problem for both workers and those who have retired, and without intervention by both the private sector and public officials, inflation has the potential to derail even the most booming of economies.
Does Social Security Increase With Inflation?
For individuals who rely on Social Security for income after retiring from the workforce, lower purchasing power can become a real problem. Thankfully, the Social Security program is designed to provide cost-of-living adjustments to keep up with inflation. The cost-of-living adjustment (COLA) was introduced in 1973, and each year since, the Social Security Administration evaluates the economy as a whole and inflation figures specifically to calculate if an increase in benefits is necessary to keep up with a loss in purchasing power caused by inflation.
In 2019 and 2020, this increase has been 1.6%; however, the annual rate adjustment corresponds to the rate of inflation, so there is no pre-determined increase that occurs each year. This can make it difficult to plan ahead, but you can rest assured that as inflation grows, so will payments. Be aware, however, that the Social Security program is currently expected to reach a point in 2020 where demand will exceed supply as the Baby Boom generation enters retirement, meaning changes may be coming down the line that will affect payment amounts provided to future retirees.
Plan Your Social Security Application
Another way to help maximize your Social Security benefits is to plan out when you will apply for benefits. You can currently receive full Social Security benefits at age 66, but this will soon change to age 67. As people live longer and the Social Security program continues to be stretched thin due to people living longer and fewer contributions coming in, the age of eligibility is expected to rise. You can take Social Security earlier, but your benefits will be reduced. Although the COLA will still be in place, you’ll be receiving a lower amount than if you wait until full retirement age. The age at which you retire can also have tax implications, so talk with a financial planning professional to discuss your unique situation.
Discuss Additional Savings Options With Your Employer
If you’re currently in the workforce, now would be a good time to discuss your savings plan options with your employer. Many companies provide access to 401(k) accounts as well as profit sharing plans. These resources not only offer the ability to grow your investments, but they also give you more control over how your money is invested. It would also be wise to work with a tax planning professional who specializes in retirement planning services and management. These individuals can help you craft a plan that will protect your money and offer a greater return in the future despite inflation or changes made by the Social Security Administration.