The closer you get to retirement age, the more concerns about Social Security benefits begin to grow. It's natural to wonder how your benefits will stretch; as prices on what feels like everything continue to go up, it's fair to ask whether those monthly checks will be enough.
Yearly cost-of-living adjustments are part of Social Security, but they're not always able to totally keep up with inflation. If you're on a fixed income or planning for retirement now, the best thing you can do is understand how these benefits work and how your timing will impact the amount of money you receive.
Why the Timing of Your Claim Matters
You can start collecting Social Security benefits at age 62, but doing so means receiving smaller monthly payments for the rest of your life. Full retirement age is between 66 and 67, depending on when you were born. If you wait until age 70 to start collecting, your benefit will be significantly higher.
For some people, it makes sense to claim early, especially if they need the income or have health concerns. Others may choose to wait in order to lock in larger payments later. There's no one right answer because your unique financial situation, expected lifespan, and other sources of income all play a role.
Understanding How COLAs Work
Cost-of-living adjustments, or COLAs, are meant to help Social Security keep pace with inflation. Every year, the Social Security Administration reviews data from the Consumer Price Index and adjusts benefit payments accordingly. In recent years, some of these increases have been quite large to reflect the higher cost of living.
Still, COLAs aren't a perfect match for every expense. Seniors often face rising healthcare and housing costs, two areas that don't always track closely with general inflation numbers. Even with adjustments, the real-world buying power of your benefit may not feel like it's growing.
The Real-World Impact of Inflation
If you're relying mostly on Social Security for retirement income, it's important to understand how far those benefits will stretch. The rising cost of food, prescriptions, and utilities can eat into your budget quickly, especially if your benefit increase is small.
Many people plan for a fixed amount, only to find that their expenses don't stay fixed at all. These situations are where proactive planning comes in handy.
FAQs
Do Social Security payments increase automatically every year?
Yes. Most years include a cost-of-living adjustment, though the percentage varies depending on inflation.
What's the best age to start collecting Social Security?
That depends on your health, financial needs, and whether you're still working. A CPA can help you run the numbers.
Do Social Security benefits lose value over time?
They can. If inflation outpaces the cost-of-living increase, your benefit may not stretch as far, which is why planning is so vital.
How a CPA Can Help You Decide
Choosing when to start collecting Social Security is a big decision. A CPA can help you look at the bigger picture. Not just the monthly amount, but how it fits into your overall finances. That includes other sources of income, possible tax implications, healthcare needs, and your long-term goals.
At Myrick CPA, we help clients across the country weigh their options and create strategies that support a stable retirement. Whether you're getting close to eligibility or still a few years out, the right planning now can help you make the most of your benefits later. Contact us to schedule a consultation.
