If you’re retired and receiving Social Security benefits, you may be aware that your income and expenses could change in the coming months. Each year, the Social Security Administration typically adjusts the checks that are sent to beneficiaries, with the goal of accommodating price changes and inflation. The cost-of-living adjustment, or COLA, is typically announced in October and implemented in January.
In 2023, the COLA was 8.7%, the highest adjustment in more than four decades. For Social Security beneficiaries who were receiving $2,000 every month, the change meant an increase of $174 ($2,000 x 0.087) for a total of $2,174 every month. Over the course of a year, that adjustment translates to $2,088 more in annual income ($174 x 12).
For 2024, the COLA may not be as high since inflation has been lower during 2023 compared to 2022. The Senior Citizens League, a nonpartisan seniors’ advocacy organization, estimates the COLA for 2024 to be 3.2%.
[Related:What Will the Social Security COLA Raise Be for 2024?]
Still, for those on a fixed income, any change in payments provides an opportunity to review the monthly budget. You could find ways to be less stretched financially or invest with the goal of earning more in interest.
Here are some ideas to help you decide what to do with the extra money from the Social Security COLA in 2024:
— Take care of living expenses.
— Eliminate outstanding debt.
— Save and invest for later.
— Put more into your health and well-being.
— Take advantage of small splurges.
— Give to others who have helped you.
Take Care of Living Expenses
Amid rising prices, you may have found it harder to cover expenses from month to month, which could make the 2024 COLA a welcome addition to your budget. “The first rule of thumb is to make sure your everyday expenses are covered with a guaranteed income stream,” says Brandon Robinson, president and founder of JBR Associates in Plano, Texas. In addition to benefits, you might have an annuity or distributions from retirement accounts to help pay for the basics.
Eliminate Outstanding Debt
If funds have been tight in recent years, you may have racked up credit card debt or taken out other loans. “Prioritize paying off these debts, starting with those carrying the highest interest rates,” says Roger Fishel, a financial advisor and retirement coach in the Orlando, Florida, area. “By reducing your debt burden, you’ll not only save on interest payments but also improve your overall financial stability.”
Save or Invest for Later
For those who don’t have three to six months’ worth of expenses built up, now may be the time to work toward that goal. “If retirees do not need the extra COLA to maintain their standard of living, saving the extra dollars for a rainy day can help battle future inflation,” says JB Beckett, founder of Beckett Financial Group in West Columbia, South Carolina. You’ll gain a sense of relief from having a cushion to fall on if needed.
There are different types of accounts that could be suitable for your emergency fund. “You can open a high-yield CD, Treasury inflation-protected securities (TIPS) account or multiyear guaranteed annuity (MYGA) if you won’t need the money for immediate needs,” Robinson says.
TIPS are a type of bond that aims to help prevent a decline in purchasing power. A MYGA offers a guaranteed fixed interest rate for a set time, such as three or five years. “This could yield you a 4% to 6% return depending on the terms,” Robinson says. Or you might consider putting the money in a brokerage account or open a Roth IRA.
Put More Into Your Health and Well-Being
You might use the funds to purchase nutritious food that you can cook at home. Or you may buy new equipment to engage in physical activities like cycling. You might even ask friends to join a wellness center with you so you can take fitness classes together.
Also check your Medicare plan and look at what you’re receiving with current policies. You might decide to put the extra cash toward more health coverage. If you don’t have a prescription drug plan, now may be the time to get one.
Take Advantage of Small Splurges
Perhaps you’ve been waiting to purchase an appliance, upgrade your phone plan or take a short trip. You might be able to use the funds toward such a purchase. “Balancing responsible financial choices with enjoying life’s pleasures is essential, as long as it aligns with your overall financial plan,” Fishel says. You might schedule a dinner out once a week at a local restaurant, where you can meet up with friends.
Give to Others Who Have Helped You
If you don’t need the extra funds, consider ways to give back to the community. “For retirees who have a desire to make a positive impact, donating to charitable causes can be a fulfilling way to utilize the extra money from COLA,” Fishel says. “Identify causes that are close to your heart and support organizations that align with your values.” Consider schools you attended or foundations that your workplace sponsored. You might offer to volunteer your time if you’re looking to get out more and socialize.
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Social Security COLA 2024: What to Do With the Extra Money originally appeared on usnews.com
