After gaining a historic 8.7% Social security cost of living adjustment The Alliance on Seniors, a national nonpartisan advocacy group, estimates that COLAs will be only around 3% in 2024 due to lower inflation. However, some expenditures that drive inflation, such as food, housing, and fuel, have higher-than-average inflation rates. put pressure on the budget.
Read more: Jeff Bezos’ advice for millennials who want to get rich
I’m a 27-year-old hedge fund founder with about $1 billion under management. Here’s why I prefer alternative investments to stocks
Additionally, several proposals targeting program funding shortfalls call for various Social Security cuts. This includes changes to his COLA calculations, which may reduce future increases.
Grant Cardon: How wealthy people invest their retirement funds
If you are not prepared for these changes, you may overestimate your future Social Security income and run out of alternative sources. Here are five ways you can reduce the impact of a lower COLA on your retirement budget.
1. Reduce cost of living
By lowering your cost of living, you can prepare for a smaller COLA and further expand your Social Security benefits. Consider your budget and see which expenses will have the biggest impact. make the right cut.
You may decide to downsize your home or eliminate a second car to significantly reduce your monthly expenses. Small changes can include buying second-hand items, being more frugal at the grocery store, monitoring your utility usage, and looking for cheaper insurance plans. Senior discounts and assistance programs may also be helpful.
2. Tackle your debt
The potentially smaller size of your COLA means you need to evaluate the debt payments that make up your retirement income. This is especially true because inflation increases the cost of everyday items and higher interest rates make it more difficult to borrow money.
Vanguard recommends focusing on high-interest debts such as credit cards, student loans, and personal loans. You can create a repayment plan that suits your financial situation. Tackling debt will temporarily tighten your budget, but it will minimize your total interest and give you a bigger cushion for other expenses later on.
3. Maintain an emergency fund
Unexpected expenses can occur at any time, but they’re even more difficult to manage when you rely on limited Social Security benefits. Therefore, it is important to have easily accessible cash to avoid hardship and the possibility of new debt.
Before a small COLA, make sure you save at least 3 to 6 times your basic monthly expenses. Ideally, keep your savings in a high-yield savings account. If possible, consider saving a year’s worth of your basic monthly expenses for extra peace of mind.
4. Diversification through investment
Investing is a great way to earn passive income. Compensate by reducing the amount of cola. Consider new bonds, dividend stocks, annuities, or rental properties to supplement what you already have in your 401(k) or individual retirement account. Each option behaves differently and has different levels of risk and return, so please consult your financial advisor for guidance.
For example, government bonds have relatively low returns but are highly safe, while dividend stocks often have higher potential returns and higher risk. There are several types of annuities that offer low risk and continuous payments, but can be expensive. On the other hand, rental properties come with responsibilities and various risks.
5. Consider continuing to work
If you already receive Social Security benefits, you can reduce the impact of a small COLA by working part-time. In addition to local opportunities, consider remote positions or freelance work for more flexibility. Keep in mind that your new income may reduce your Social Security benefits or make some of them taxable.
On the other hand, if you are still considering applying for Social Security, you may want to delay that decision and continue working. For example, instead of applying at age 62, from age 66 he could wait until his full retirement age of 67. This won’t affect her COLA, but it will avoid reducing her benefits due to early retirement.
GOBankingRates Details
This article was first published GOBankingRates.com: Social Security Cuts: 5 Ways Baby Boomers Should Prepare for Future Cost-of-Living Adjustment Changes
