Mary Johnson, editor
What happens to people living on Social Security when inflation cools? Can retirees “recover” from the effects of inflation? I get this question from journalists every month. Is inflation something from which we can recover?
Inflation isn’t going down; it’s just slowing. Although prices aren’t increasing as fast as a year ago, prices are still higher than one year ago. That means there will be a cost-of-living adjustment (COLA). I’m estimating that the COLA in 2024 will be about 3.2%.
The COLA we are discussing is not necessarily a “low” one, at least by historical standards. After receiving the highest COLA in over 40 years it may feel that way. The average COLA over the past 20 years is 2.6%.
The good news is that we aren’t in the position of scraping the bottom of the deflation barrel and thus not receiving any COLA. Earlier in the year, as some economists forecast, I feared this might happen if our economy slid into recession. That happened in 2010, 2011, and 2016 when the COLA was zero, and just 0.3% in 2017. But it looks like we escaped that bullet — for now.
What can your household do to “recover” financially? Here are three key financial moves to make before the end of the year:
- Review your health, prescription drug coverage, and cost changes during Medicare Open Enrollment. Understanding how your Medicare drug and health plans are changing and comparing your options is one of the best ways to protect your finances. Medicare’s Annual Open Enrollment Period starts October 15, 2023, and runs through December 7, 2023. Free counseling is available through state health insurance assistance programs (SHIP) — https://www.shiphelp.org —to help you compare coverage, evaluate, and understand your options, and switch to other plans when you find a better deal.
- Evaluate your potential tax liability. If you have income in addition to Social Security benefits, now is the time to ensure you’ve had enough tax withheld from your Social Security benefits, savings, earnings, and/or pensions to avoid tax penalties later. This is especially true since Social Security benefits increased by 8.7% this year. According to the IRS, “taxpayers must pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. If they don't, they may owe an estimated tax penalty when they file.” If you think you may owe more than you’ve had withheld, there’s still time to send an estimated tax payment. https://www.irs.gov/newsroom/what-taxpayers-need-to-know-about-making-2022-estimated-tax-payments.
- Look into Senior Food Programs. Home food delivery is available from food banks, food pantries, or local Meals on Wheels programs for those who meet income or medical requirements. Learn more about this and other food programs in your area from Feeding America. https://www.feedingamerica.org/our-work/hunger-relief-programs/senior-programs
How well has your monthly household budget “recovered?” Take TSCL’s 2023 Retirement Survey and let us know!