Retirees feeling crushed by the highest inflation in decades are getting some relief. The Social Security Administration announced that benefits will receive an 8.7% Cost of Living Adjustment (COLA), the largest increase since 1982. In pure dollar terms for the average Social Security recipient, it will be the biggest COLA ever recorded. Don’t get me wrong, that’s a good thing – many retirees need every extra dollar they can get.
But look beyond the headline figure and you’ll see that it doesn’t change the financial situation that many retirees already find themselves in. In this annual COLA review, I’ll guide struggling retirees and those preparing to enter their golden years.
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The Math Behind Social Security Is Falling Apart Pretty Quickly
This year’s COLA is up from 5.9% last year. I then wrote about it and illustrated how certain basic living expenses can quickly eat into a retiree’s benefits. You might wonder how much Social Security can cover once you consider the high level of living expenses these days. As a reminder, the average retired Social Security recipient receives $1,669 a month in benefits.
According to Statista, the average rent in the United States in 2022 is $1,295 per month. This was up 17% from $1,100 the previous year! Not only is this increase far greater than what this year’s COLA will cover, but for those who rely entirely on their benefits, it represents 77% of their income. That’s not even taking into account a long list of other living costs like utilities, medical care, and groceries.
Most living expenses are going up, not down, making Social Security much more of a financial crutch than the safety net many think. But don’t let that get you down. Realizing this truth is the first step to a brighter financial future and adding some sparkle to those golden years. Here are some tips for navigating retirement.
1. Clear a low bar
Many do not notice how low the financial bar of Social Security is. Benefits for the average retiree total $20,028 per year. That’s the equivalent of a full-time job at $9.63 an hour. For those who are able to work, simply adding income to your life is the quickest and most effective remedy. The great thing is that breaking a low bar means you can make a huge difference to your finances with relatively little return.
The minimum wage in the United States is $7.25 an hour, but most jobs pay more these days. The average hourly wage for an entry level job is $16, and many larger companies will start at $10 to $12 per hour. You can host shoppers at your local retailer a few nights a week and potentially add thousands to your annual income. Remember that Social Security retirees can keep their benefits with no income limit once they reach full retirement age.
2. Consider a transition rather than a difficult retirement
Retirement doesn’t have to be an all-or-nothing proposition. Remember that regardless of your career, you probably have decades of experience and knowledge. Are you in sales? Consider gradually reducing your customer base to a manageable group of high-value customers. Are you an expert on a subject? Consider consulting, which can generate high incomes for fewer hours than a typical nine-to-five job.
Some people view retirement age as a rapidly approaching cliff. But life is all about perspective, and you still have options if you’re not financially prepared for a full retirement in your senior years. Creating income is quite doable when you narrow down your career; it might not be in the everyday grind style you’re used to. But going that route can make Social Security the crutch it’s meant to be, instead of what puts your food on the table.
3. Make your money work
Investing is an essential part of any retirement strategy. To leave your wealth entirely in cash is to ask inflation to eat away at your purchasing power. Of course, you don’t want to take too many risks in your later years. Consider investments that will diversify your portfolio, such as index funds, or those that generate passive income, such as stocks and dividend bonds. It’s never too late to start, and putting extra capital to work while you can will make your life easier later on.
Retirement is a unique experience for everyone, one that depends on your individual decisions and circumstances throughout life. But you can continually improve your situation, even if you’re not working with the best hand.
The $18,984 Social Security premium that most retirees completely overlook
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