COLA, or cost-of-living adjustment, can help Social Security benefits keep pace with inflation. Learn more about an issue impacting most retirees.
Federal data due out next week will establish the basis for next year’s Social Security COLA, a vital factor in household budgeting for anyone receiving benefits.
The COLA, or cost-of-living adjustment, is based on the inflation rate as measured by the third quarter CPI-W, or the Consumer Price Index for Urban Wage and Clerical Workers, in keeping with a federal law passed in 1972 that provides for automatic annual adjustments to Social Security income. Prior to the passage of the law, benefits were increased only through special legislation enacted by Congress, according to the Social Security Administration.
Last year, Social Security recipients received a COLA of 3.6 percent, following two years with no increase. Analysts predict next year’s increase will be roughly 1.5 percent, an adjustment that may fail to protect seniors facing increases in their Medicare premiums, compounded by rising costs for healthcare, housing and fuel.
Related Story: Modest COLA Expected for Social Security
The COLA helps investors address a growing source of anxiety, securing a sufficient cash flow to pay for daily living expenses in retirement. Retirement income ranks among the top three personal financial concerns of Main Street Americans, according to Millionaire Corner research conducted over the first quarter of the year. More than two-thirds of investors with a net worth of $100,000 up to $1 million, said they were concerned about having enough money to provide sufficient income in retirement. The only issue more pressing was maintaining their current financial position in the prolonged economic downturn.
Related Story: COLA Basis Impacts the Buying Power of Seniors
Retirement concerns are most acute among Main Street Investors in their peak earning years. Less than half of those ages 45 to 54 say they expect to have sufficient income to live comfortably during retirement, according to our research. More than 40 percent expects to delay retirement due to the current economic environment and 39 percent say they are not able to save enough to meet their retirement goals.
Our research also indicated that financial professionals can play a role in helping investors establish a sufficient cash flow in retirement. Forty-five percent of Main Street investors have sought professional advice on liquidity needs, and 17 percent plan to do so in the future.
Investors concerned about the 2013 COLA can track the third quarter CPI-W data due out on Oct. 16.