Social Security: How To Balance Your New COLA Benefit With Other Income Sources
Social Security beneficiaries will be getting a lot more money in 2023 thanks to an 8.7% cost-of-living adjustment announced on Thursday. On average, benefits will increase by more than $140 a month next year, according to the Social Security Administration.
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For retirees who already collect Social Security, the extra money will help them deal with the highest inflation rate since the early 1980s. In a separate announcement Thursday, the U.S. Bureau of Labor Statistics said inflation in September rose 8.2% over the past 12 months.
Many Social Security recipients need the 8.7% COLA just to pay the bills, while others with more wealth built up can simply put it toward savings or discretionary spending. In either case, it’s important to balance your new COLA benefit with other income sources, experts say.
Social Security is” just one bucket” in the retirement income distribution planning process, said David Freitag, CLU, a financial planning consultant and Social Security expert with MassMutual.
“Smart planning includes choices and options,” Freitag told GOBankingRates in an email statement. “Caution would suggest that everyone needs more than one bucket, and everyone should have multiple ways to generate income in retirement. So when inflation, bad markets, health concerns, or the need to help children or grandchildren turns up, then those other buckets will be available. The old story about ‘all of your the eggs in one basket’ applies to retirement planning and the ability to help keep up with cost-of-living changes.”
He, like most other financial experts, advises developing a diverse set of income sources and financial habits to lessen your dependence on Social Security alone.
“Diversification is the key to security — not just market diversification, but lifestyle diversification,” Freitag said. “Perhaps it is better to work longer or downsize a house. Maybe it is better to defer Social Security and earn those delayed retirement credits. Maybe family trips to a local park can be just as fun as a trip to a distant resort. As the situation changes, you have to adapt to the new reality.”
If you’re already retired and want to develop new income streams to balance with your Social Security payment, there are quite a few options. These include using the extra money from the 2023 COLA to invest in stocks, bonds, annuities, funds or small businesses.
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If you need the COLA to pay for essentials, you can always seek additional income through work. One of the best options here is to become an independent contractor, Boss Magazine reported. As a contractor, you can work flexible hours to suit your own schedule. If you have developed expertise in a particular field over the years, it might be easy to find a well-paying contractor gig — especially now, with historically low unemployment rates making it difficult for many employers to find qualified people.
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