Last October, seniors on Social Security received some excellent and comforting news. Their benefits would be getting an 8.7% cost-of-living adjustment (COLA) in 2023. That's well above the 5.9% COLA that came through in 2022.
Of course, the reason for this year's giant COLA boils down to inflation. But thankfully, the rate of inflation has been declining steadily since 2023's COLA was announced. And if that continues, seniors on Social Security might, for the first time in a while, find themselves with extra money on their hands.
If that's the situation you expect to land in, it's important to make the most of it. See, in recent years, Social Security COLAs have largely failed to keep pace with inflation. So this might be your first and only chance in a long time to use your higher monthly benefits to shore up your savings. Here are some options to look at in that regard.
Image source: Getty Images.
1. Pad your emergency fund
Emergency savings aren't just for working folks. It's important for seniors to have good old cash in the bank for unplanned bills, whether it's medical expenses or home repairs.
In fact, it's really a good idea for retirees to have enough money in cash to cover a year or more of living expenses. That way, if the stock market tanks like it did in 2022, seniors can avoid tapping their nest eggs when their portfolios are down and steer clear of long-term losses.
The extra money in your monthly Social Security checks this year could go a long way toward boosting your emergency fund. So assess your cash savings and see if yours could use a lift.
2. Invest in the broad market
Putting your money to work during retirement is a good thing, because that way, you can grow your savings and leave yourself the option to take larger withdrawals. Meanwhile, we're starting off 2023 with stock values being down across the board. So it's actually a good time to invest spare money, if you have some from your larger benefits.
If you're not too eager to spin your wheels researching individual stocks, fall back on broad market index funds. Putting money into an S&P 500 fund, for example, could help your nest egg grow even more.
3. Turn your extra cash into ongoing income
Maybe your higher Social Security benefits are leaving you with an extra $50 a month to invest with, or $100. No matter what total you're looking at, you can use that money to invest in income-producing assets.
One option in this regard is dividend stocks. Another is municipal bonds, which offer the benefit of interest payments that are always tax-exempt at the federal level (and sometimes at the state and local level, too). You might even choose to invest your extra cash in a small business you start and manage.
Most years, seniors on Social Security lose buying power when their COLAs fail to keep pace with inflation. This year, beneficiaries are finally looking at the opposite scenario, so if that's the boat you're in, your best bet is to take advantage of it.
