Social Security benefit bump won’t break you

As cost-of-living adjustments (COLA) go, it’s paltry. Some 68 million Social Security beneficiaries will receive a 1.6% increase in their monthly check starting in 2020. That means the average Social Security beneficiary will see their benefit increase by just $23.40 a month to $1,460.

What’s more, some of the increase will be used to offset the rising cost of Medicare Part B, says Heather Schreiber, the founder of HLS Retirement Consulting.

The government typically deducts Medicare Part B premiums from a beneficiary’s Social Security check. Those premiums are expected to rise around $8.80 a month to $144.30 in 2020 for about 70% of Medicare beneficiaries.

So, what should you do?

Tighten your belt

Social Security beneficiaries will have to look for ways to trim unnecessary expenses if they want to maintain their desired standard of living.

“Retirees living on a fixed budget may need to consider tightening the reins in areas of nonessential spending and, if necessary, work with a reputable financial professional to help guide them in making the monies they have saved for retirement work smarter,” says Schreiber.

Spend down your assets

Some retirees only want to spend their interest income and dividends to fund their retirement lifestyle. But many retirees might need to consider spending down their principal as well to fund living expenses.

The often-recited rule of thumb is that you can withdraw 4% per year from your nest egg and not worry about running out of money for 30 years.

Consider investing in assets that are supposed to keep pace with inflation. Some low-risk investments include Treasury Inflation-Protected Securities, or TIPS, and Series I savings bonds. TIPS and Series I savings bonds can be purchased at TreasuryDirect.gov.

Don’t, however, increase the amount of money you invest in risky – as in stocks – assets. Of the three levers that can be adjusted to create additional income in retirement - increasing income, reducing expenses and increasing risk - increasing risk, especially in retirement, can lead to disastrous results, says David Cechanowicz, a senior financial planner with REDW Wealth.

Go back to work or stay working

It might not be the most appealing option, but you should consider going back to work either part or full time. Earned income is one way to offset the adverse effects of inflation.

Working longer can provide a significant multiplier effect for income in retirement, says Cechanowicz. How so? One, working just one more year will generally increase an individual’s basic Social Security retirement benefit by boosting their lifetime earnings. Two, even in the years between age 62 and 66, each year of delay will increase the base Social Security benefit by about 6.7% per year. Three, that additional year of work means one less year of income needed in retirement. And finally, that additional year may enable an individual or family to pay down debt, which could reduce expenses in retirement.

Don’t file for Social Security just yet

If you haven’t claimed Social Security yet consider waiting though not beyond age 70 – to file for your benefits. That way, Schreiber says, your monthly check will increase. You can learn more about what are called delayed retirement credits or DRCs at the Social Security website: www.ssa.gov/planners/retire/delayret.html.

“It may mean having to work longer, or dipping into retirement savings to delay claiming,” says Cechanowicz, adding that the long-term boost in benefits could make a significant difference in retirement income.

If you’re not yet retired, Cechanowicz also recommends saving as much as possible to reduce your reliance on Social Security later.

Remember that inflation is low

Social Security’s COLA is so low because inflation is low. The COLA, by way of background, is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers or CPI-W. In other words, the cost of goods and services such as housing and clothing and transportation is not rising so fast.The bad news, according to the Senior Citizens League, is that the cost of living for seniors is rising faster than it is for the general population.

Medicare Part B premium rise is curbed

The low COLA will limit, at least for some, the increase of Medicare Part B premium under what’s called “hold harmless” clause in the law, says Jim Blankenship, author of “A Social Security Owner’s Manual.”

Current law contains a provision that limits the dollar increase in the premium to the dollar increase in an individual’s Social Security benefit.

This would apply to anyone receiving a Social Security benefit of less than an estimated $550 per month.

“It’s cold comfort for folks in that position,” says Blankenship. “Although their net Social Security benefit would not decrease, the cost of living continues to increase.”