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Understanding the Social Security COLA Increase for 2024: What It Means for Your Financial Planning

January 17, 2024

As 2024 approaches, the Social Security Cost-of-Living Adjustment (COLA) is a key change impacting many Americans. At IM Wealth Partners, we understand the importance of staying informed about these changes, as they play a crucial role in your financial planning, especially for retirees and those nearing retirement. In this article, we'll explore the details of the Social Security COLA increase for 2024 and discuss strategies to optimize your financial plan in light of these changes.

What is Social Security COLA?

The Cost-of-Living Adjustment (COLA) is an annual adjustment in Social Security and Supplemental Security Income (SSI) benefits to counteract the effects of inflation. COLAs are determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) calculated by the Bureau of Labor Statistics.

The 2024 COLA Increase

For 2024, the Social Security Administration has announced a COLA increase. This adjustment reflects the rising cost of living and intends to help beneficiaries maintain their purchasing power. The percentage increase will be based on the third-quarter economic data from the previous year.

Impact on Beneficiaries

  1. Increased Monthly Benefits: Beneficiaries will see a rise in their monthly Social Security checks. This increase is vital for retirees relying on Social Security as a significant source of their retirement income.
  2. Tax Considerations: With the increase in benefits, it's crucial to consider the potential tax implications. Up to 85% of Social Security benefits can be taxable, depending on your income level.
  3. Adjusted Withholding: If you currently have taxes withheld from your Social Security benefits, you may want to review this in light of the COLA increase.

Strategies for Financial Planning

  1. Budget Adjustment: Review and adjust your budget to reflect the increased income. Consider allocating the extra funds towards savings, debt reduction, or investment.
  2. Investment Opportunities: The COLA increase might provide additional funds that can be invested. It’s an opportunity to discuss diversifying your portfolio or increasing your investment in certain areas with your financial advisor.
  3. Retirement Planning: For those nearing retirement, the COLA increase might impact your decision on when to start taking Social Security benefits. It’s essential to consider this in your overall retirement strategy.
  4. Inflation Protection: While the COLA increase helps, having other inflation-protected investments in your portfolio, such as Treasury Inflation-Protected Securities (TIPS) or certain annuities, is vital.
  5. Healthcare Costs: Healthcare costs often rise faster than the general inflation rate. Ensure that your financial plan accounts for these potential increases, especially if a significant portion of your income is from Social Security.
  6. Long-Term Care Planning: Consider the impact of the COLA increase on your long-term care plans. It might provide additional funds to invest in long-term care insurance or other savings for future healthcare needs.

Conclusion

The Social Security COLA increase for 2024 is a significant development, particularly for retirees and those planning for retirement. While it provides some relief against inflation, it's essential to incorporate this change into a broader financial strategy. At IM Wealth Partners, we specialize in creating comprehensive financial plans that consider such changes and how they impact your financial goals.

Want to understand how the Social Security COLA increase for 2024 affects your financial plan? Contact IM Wealth Partners for a complimentary consultation, and let us help you navigate these changes to help secure your financial future.