But look beyond the headline number and you’ll see that it doesn’t change the financial situation many retirees already find themselves in. In this annual COLA review, I will guide struggling retirees and those preparing to enter their golden years.
The Mathematics Behind Social Security Breaks Down Quickly
This year’s COLA is an improvement over last year’s 5.9%. I wrote about it at the time and illustrated how a few basic living expenses can quickly eat into a retiree’s benefits. You might be wondering how much Social Security can cover after reviewing how high living expenses are these days. As a reminder, the average retired Social Security recipient receives $1,669 a month in benefits.
According to Statista, the average rent in the United States in 2022 is $1,295 per month. This is up 17% from the previous year’s $1,100! Not only is that increase far more than this year’s COLA will cover, but for those who depend entirely on their benefits, it represents 77% of their income. That doesn’t even include a list of other living costs like utilities, healthcare, and groceries.
Most living expenses are going up, not down, which makes Social Security far more of a financial crutch than the safety net many think it is. But don’t let that get you down. Realizing this truth is the first step towards a brighter financial future and adding a little sparkle to those golden years. Here are some tips for navigating retirement.
1. Clearing a low bar
Many do not realize how low the financial level of Social Security is. The average retiree’s benefits total $20,028 annually. That’s the equivalent of working full-time for $9.63 an hour. For those who can work, simply adding income to their lives is the quickest and most effective remedy. The great thing is, clearing a low bar means you can make a big difference to your finances with relatively little result.
The minimum wage in the United States is $7.25 an hour, but most jobs pay more these days. The average hourly wage for an entry-level job is $16, and many top companies will start at $10 to $12 an hour. You can greet shoppers at your local retailer a few nights a week and possibly add thousands to your annual income. Remember, Social Security retirees can keep their benefits with no income cap once they reach full retirement age.
2. Consider a difficult transition versus retirement
Retirement doesn’t have to be an all-or-nothing proposition. Don’t forget that whatever your career, you probably have decades of experience and knowledge behind you. Are you in sales? Consider narrowing your customer base down to a manageable group of high-value customers. Are you an expert on a subject? Consider consulting, which can generate high income for fewer hours than a typical nine-to-five job.
Some people see retirement age as a rapidly approaching cliff. But life is a matter of perspective, and you still have options if you are financially unprepared for full retirement in old age. Income generation is very achievable as you narrow down your career; it might not be the day-to-day style of work you’re used to. But going that route could make Social Security the crutch it should be, rather than the thing that puts your food on the table.
3. Put your money to work
Investing is a critical component of any retirement strategy. Leaving your wealth all in cash is asking inflation to eat your purchasing power. Of course, you don’t want to take too many risks in your later years. Consider investments that diversify your portfolio, such as index funds, or those that generate passive income, such as stocks and dividend bonds. It’s never too late to start, and putting extra capital to work while you can will make your later years easier.
Retirement is a unique experience for everyone that depends on your individual decisions and circumstances throughout your life. But you can continually improve your situation even if you’re not working with the best hand.