Unless you’ve been living under a rock this year, you know how real inflation has been. From gas to groceries to everything in between, increased prices have drained people’s wallets. In July 2021, the personal savings rate in the US was 10.5%. By the end of June 2022 (the last available data of August 14), the savings rate had fallen to 5.1%.
Inflation affects everyone, but people with fixed incomes, such as Social Security, are hit the hardest. There is one source of relief from this historically high inflation for these individuals: retirement benefits could see a big jump in monthly payments next year.
How Inflation Affects Social Security
Since 1975, Social Security benefits have been adjusted each year in line with inflation. It’s hard to tell someone to survive on the same monthly amount they received 10 to 15 years ago. The cost of living (COLA) adjustment is based on consumer price indices in the third quarter of the previous year.
Given recent annualized inflation rates – 8.5% (July), 9.1% (June) and 8.6% (May) – when Social Security announces COLA for 2023, it is expected to be at least 8. . %. And that’s on the conservative side. For perspective, here are Social Security’s COLA adjustments for the past 10 years:
In June, the median Social Security benefit was $1,669. An 8% increase would bring it over $1,802. This will undoubtedly help, but even with the increase, it may not be enough for many people.
You probably need other sources of income
One way people can determine how much they need annually after retirement is by using the 80% rule. The goal is to have at least 80% of your annual income after retirement to maintain your current lifestyle. For example, these are the ideal annual amounts based on current annual income:
|Annual salary||Annual goal at retirement|
At $1,802 a month, that’s just over $21,600 a year in Social Security. Applying the 80% rule, $21,600 would only be ideal for someone currently earning $27,000. If you earn more, don’t rely solely on Social Security, not even COLA.
The 80% rule is more of a baseline than an absolute goal, so adapt it to your lifestyle. If you plan to downgrade, you can aim for less and vice versa. However you adjust it, chances are $21,600 won’t be enough to bear the financial burden. It takes some extra savings.
Retirement accounts are designed to encourage you to save and invest over the years after you retire. It’s always better to be over-prepared than under-prepared, and using accounts like a 401(k) and an IRA are two of the best ways to do this. You get tax breaks that can save you money up front, and you reap the benefits of extra retirement income in the back.
The $18,984 Social Security Bonus Most Retirees Completely Overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can give your retirement income a boost. For example, one simple trick could save you as much as $18,984…a year! Once you know how to maximize your Social Security benefits, we think you can retire with confidence with the peace of mind we all strive for. Click here to learn how to learn more about these strategies.
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