Social Security benefits will rise 1.5 percent next year, making it one of the program’s smallest increases in annual cost-of-living adjustments in recent years.
The increase is down from the 1.7 percent increase for 2013. There was no cost-of-living increase at all in 2010 and 2011 because prices fell in the wake of the recession. A 3.6 percent adjustment in 2012 has been the only significant rise in benefits in recent years. In January 2009, pre-recession, the increase was at 5.8 percent.
Without knowing how the increases are calculated, one may think they are totally arbitrary. They are not. The Social Security Act specifies a formula based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This measures inflation. When there is little or no variation in the CPI-W from year to year, you will see a commensurately modest cost-of-living adjustment.
According to the CPI-W, overall prices were up 1.2 percent for the 12 months ending in September. They would have been much higher had gas prices not plunged 7.5 percent over the same period.
If you are like most people, a 1.5 percent increase in your paycheck isn’t going to make much of a difference. For the average Social Security benefit recipient who gets $1,294, the increase adds up to only about $19 more. This amount barely keeps up with the current rate of inflation. A silver lining in all this is that forecasts project continued low inflation in 2014.
Some Americans elect to utilize a strategy known as “file and suspend.” This entails filing for Social Security benefits at full retirement age to enable their spouse to access spousal benefits, but to suspend their own benefits, and in doing so, receive an 8 percent credit for each year they wait to receive those benefits up until age 70. As a result of the COLA adjustment, these individuals can expect a 9.5 percent credit for 2014 — the regular 8 percent plus the 1.5 percent cost-of-living adjustment.
Consider speaking with a financial professional to see if your current sources of retirement income are sufficient to meet your needs now and in the future. There are a number of strategies for providing supplemental retirement income.
Your financial advisor can help you decide what might be best for you and thereby lessening your dependence on Social Security benefits. Please feel to email questions about Social Security to bibi.taylor@ameriflex.com.
— Bibi Taylor, MBA, is a wealth manager for AmeriFlex, 3700 State St., Suite 310, in Santa Barbara. Call 805.898.0893 for more information.