Wednesday, November 29News That Matters

How to make the most of Social Security's 2.8% cost-of-living adjustment for 2019

The Social Security Administration has announced that the cost-of-living adjustment to benefits will be 2.8 percent next year.

The Social Security retirement benefits you receive are unique to you and your work history.

A 2.8 percent increase for someone who is getting $ 2,800 in benefits per month will result in a bigger bump than for someone who is receiving $ 1,000 per month, said Amin Dabit, director of advisory services at Personal Capital.

To understand how this change may affect you and your check, create or log in to your Social Security account online.

“To get the most accurate number on how that impacts you as an individual, it’s best to go on the site and get more data for you specifically,” Dabit said.

Resist the temptation to use the extra fund you receive next year to take a big trip, Freitag said.

Instead, assume the increase to your Social Security benefits will pay for necessities such as utility bills, transportation costs and taxes.

“You have to look at the bigger picture,” Freitag said. “You have to look at what it amounts to annually, and, more importantly, what is the overall impact for the rest of your years in retirement.”

Keep in mind, too, that a higher benefit will affect how you take money from your different retirement accounts, including traditional pre-tax individual retirement account or post-tax Roth IRAs, Dabit said.

“It’s important to look at all those different pieces in your life,” Dabit said. “That way, you can try and make your money last longer over the life of your retirement.”

While Social Security cost-of-living adjustments are aimed at helping all retirees keep up with rising costs, your personal expenses may be going up or down at a different rate.

“Everybody’s inflation rate is personal,” said Scott Thoma, investment strategist at Edward Jones.

To find out how your personal costs are changing, start by tracking your budget. Then, do a check-up annually to see where you are spending more or less.

More from Fixed Income Strategies:
Your Social Security check will get a 2.8% boost in 2019
40% of American middle class face retirement poverty
Self-driving cars could change the way you move in retirement

Health-care costs are one area that consistently take up a chunk of retirement benefits for many retirees. Also take a look to see if other expenses — such as utilities or food — are taking up more of your budget.

You may spend less on discretionary areas such as travel as you age, Thoma said.

Knowing how your spending needs change will help you better allocate the money that comes in and your investments, Thoma said.

The good news for retirees this year is that Medicare Part B premiums likely won’t eat up the Social Security cost-of-living adjustment in 2019.

“The Social Security COLA is going to be more than, or should be more than, what the increases in their Part B premiums are going to be in dollar terms,” Thoma said. “There will be a little more money in their pockets than before.”

No matter your age, working even just one year longer can increase your Social Security benefits.

To calculate your benefit, the Social Security Administration takes your highest 35 years of earnings.

“If you’re still earning money, Social Security is going to recompute your benefit every year,” said Laurence Kotlikoff, professor of economics at Boston University and president of Economic Security Planning, a provider of financial planning tools. “If you place one of the lowest of those 35 years of indexed earnings, then your benefit will go up for the rest of your life.”

That can far outweigh any extra taxes that you may have to pay, Kotlikoff said, particularly for individuals who have had significant gaps in their earnings records.

Let’s block ads! (Why?)

Financial Advisor Hub

Leave a Reply

Your email address will not be published. Required fields are marked *