The Social Security Administration has enacted a 2% cost-of-living adjustment (COLA) for this year. While this news may be making headlines, what does it mean for you?

Why is COLA important?

COLA helps ensure inflation doesn’t erode the purchasing power of your Social Security benefit. The amount of COLA, which is typically announced in November, is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) – a measure tied to inflation – from the third quarter of the previous year to the third quarter of the current year. If there is no increase in CPI-W, there can be no COLA.* Over the past few years, COLAs have been almost nonexistent. In fact, this year’s 2% adjustment is the biggest COLA increase since 2012.

While COLA (and inflation in general) may reflect the national average, it’s important to note that this may not reflect your “personal inflation rate.” Depending on your mix of expenses (everything from monthly living costs to health care), the COLA may or may not be keeping up.

Ways to Take Action

• If you’re approaching retirement – Your decision of when to start taking Social Security may have much more of an impact on your benefit than COLA. In other words, do you plan to receive a smaller amount for a potentially longer period of time or a larger amount for a potentially shorter time? There are several factors to consider, including your life expectancy, any post-retirement employment, how much you rely on the income from your benefit and the impact to spousal and survivor benefits. Your financial advisor can help you determine how your choices can affect your overall retirement strategy.
• If you’re already receiving Social Security benefits – It’s critical to review your expenses, sources of income and mix of investments regularly with your financial advisor. He or she can work with you to help position your investments to help provide the income you’ll need throughout retirement.