Dollars & Sense

Understanding Increases in Social Security Benefits

When to withdraw Social Security benefits my have much more of an impact than COLA.
Kate Warne, February 2018

COLA — or cost of living adjustment — helps ensure inflation does not erode the purchasing power of your Social Security benefit. The amount of COLA, which is typically announced in November, is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — a measure tied to inflation — from the third quarter of the previous year to the third quarter of the current year.

If there is no increase in CPI-W, there can be no COLA. Over the past few years, COLAs have been almost nonexistent. In fact, this year’s 2% adjustment is the biggest COLA increase since 2012.

While COLA (and inflation in general) may reflect the national average, it’s important to note that this may not reflect your “personal inflation rate.” Depending on your mix of expenses (everything from monthly living costs to health care), the COLA may or may not be keeping up.

What are some ways you can take action? If you’re approaching retirement, your decision of when to start taking Social Security may have much more of an impact on your benefit than COLA. In other words, do you plan to receive a smaller amount for a potentially longer period of time or a larger amount for a potentially shorter time?

There are several factors to consider, including your life expectancy, any post-

retirement employment, how much you rely on the income from your benefit and the impact to spousal and survivor benefits. Your financial advisor can help you determine how your choices can affect your overall retirement strategy.

If you’re already receiving Social Security benefits, it’s critical to review your expenses, sources of income and mix of investments regularly with your financial advisor. He or she can help position your investments to provide the income you’ll need throughout retirement.

Kate Warne, PhD, is an investment strategist at Edward Jones.


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