COLAs and Your Retirement

Social Security and some pensions increase the benefit you receive to keep pace with inflation. They call these periodic increases a Cost of Living Adjustment or COLA.

Over a long retirement these COLAs can add up- for example, if a retiree collected a Social Security benefit of $1,700 at age 65, that benefit would increase to almost $2,300 at age 85 if the COLAs averaged 1.5% per year.

Do these larger Social Security benefits really keep pace with inflation? It depends a lot on the individual.

If you are someone with few medical bills and few trips to the pharmacy it is likely you are ok.

However, if you have lots of unreimbursed medical expenses, you may find that your income is not keeping up with the cost of staying healthy. That is because medical expenses tend to rise in price faster than other things we use (food, utilities, real estate taxes, etc.).

Without a crystal ball to predict the future- not knowing how our expenses may change over time- it is clear, retirees need to maximize their incomes from day one. By squeaking every dollar of return from their retirement savings, they able to make those dollars last the longest.