Social Security COLA No Match for Inflation — These Retirement Savings Options Could Help
Despite the 5.9% cost of living adjustment (COLA) for 2022, the highest in decades, seniors are still losing buying power thanks to inflation. According to The Motley Fool, COLAs have notoriously done a poor job at helping seniors during periods of high inflation. This is true even when COLAs have been generous.
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In January, the Consumer Price Index was up 7.5% on an annual basis, the largest since 1982. The Motley Fool noted that this hurts most seniors struggling financially, particularly those who receive most of the income from Social Security. Social Security only replaces about 40% of pre-retirement wages for the average earner.
Although seniors today are struggling, future retirees may still have time to build a sizeable nest egg for retirement.
There are several tax-advantaged options when it comes to saving for retirement. According to Bankrate, there are a few options that experts recommend:
- 401(k): A 401(k) plan is a company-sponsored retirement account. Employees can contribute income while employers can match contributions. If your employer does match them, for each dollar you save, your employer may wholly or partially match your contribution up to a certain percentage of your salary.
- IRA: An IRA is a retirement account that offers tax advantages for retirement savings. The annual contribution limit is $6,000 or $7,000 if you’re age 50 or older for 2022.
- Taxable accounts: If you can save more, you can put extra funds into a taxable account, such as a brokerage account or a bank account.
Having savings available during retirement could help make up for Social Security COLAs that fail to keep up with inflation and give you more financial flexibility.
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