A larger Social Security check is coming to retirees across the nation this month.
There will be larger checks throughout the year as a result of the Cost of Living Adjustment (COLA) increase of 5.9% — the largest in decades.
But, don’t get overly excited when you see the Social Security Administration deposited your check into your bank account.
Here is Why
Getting more money from the Social Security Administration may seem nice.
However, what really matters is what you can buy with the check and not the actual dollar amount.
It is likely, however, that retirement spending will fall this year regardless of the huge raise retirees are receiving.
Fool reports that cost of living adjustments are calculated through changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers.
In July, August, and September, the CPI-W data shows prices increasing compared with the prior year’s same three months.
Seniors will receive a 5.9% raise.
But, the only issue is that that calculation is based upon a snapshot in time, but inflation has continued to rise since then.
In November 2021, a different price index showed a 6.8% increase in prices compared with November 2020. In December, it’s likely to reach 7%.
When you get a raise of 5.9% and prices are up 7%, you have no more money to spend with your “benefit bump.”
The result is, you will lose ground since your income doesn’t rise as fast as prices do.
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What To Do When Inflation Rises
It’s unquestionably bad news that you didn’t really get a raise on your Social Security benefits.
As long as you are aware of this reality, you can take steps to minimize its effects on your fixed income and avoid financial troubles caused by rising prices.
You can take the below steps to deal with inflation:
- Don’t make large purchases right now: Don’t buy a car or make improvements to your home if you don’t need them right now. Wait for prices to stabilize. A shortage of staffing or other supply chain problems may affect the items you would be purchasing.
- Make sure your investment portfolio is well-diversified: Ideally, a well-diversified portfolio will help you avoid losing ground, as it will provide several returns that will outpace inflation.
- Consider less expensive alternatives for high-priced foods and other commodities: When the price of a particular food item rises fast, opt for less expensive alternatives like a more plant-based diet
- Save energy: Insulating your house and adjusting your thermostat can help you reduce your energy bills significantly. More so, don’t use high-power appliances at peak times. Lastly, turn off your lights when you’re not home.
In taking these steps, hopefully, you will be able to stay within your budget even as prices continue to rise while you receive a fat Social Security check.