Savings

Social Security COLA No Match for Inflation – These Retirement Savings Options Could Help

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Despite the cost of living adjustment (COLA) of 5.9% for 2022, the highest in decades, seniors continue to lose purchasing power due to inflation. According to The Motley Fool, COLAs have notoriously done a poor job of helping the elderly during times of high inflation. This is true even when the COLAs have been generous.

Social Security calendar: when the first COLA checks will arrive in March 2022
Explore: Social Security COLA increases add so much money to your pockets every month

In January, the Consumer Price Index rose 7.5% on an annual basis, the largest since 1982. The Motley Fool noted that this hurts most financially challenged seniors, especially those who receive the bulk of social security income. Social security only replaces around 40% of the pre-retirement salary for the average worker.

Although today’s seniors are struggling, future retirees may still have time to build a substantial retirement nest egg.

There are several tax-efficient options for saving for retirement. According to Bankrate, there are a few options recommended by experts:

  • 401(k): A 401(k) plan is a company-sponsored retirement account. Employees can contribute on earnings while employers can match contributions. If your employer matches them, for every dollar you save, your employer can fully or partially match your contribution up to a certain percentage of your salary.
  • IRA: An IRA is a retirement account that offers tax advantages for retirement savings. The annual contribution limit is $6,000 or $7,000 if you are 50 or older for 2022.
  • Taxable accounts: If you can save more, you can place additional funds in a taxable account, such as a brokerage account or a bank account.

See: 10 reasons why you should file for Social Security sooner
Find: 9 Things Most Retirees Don’t Know About Social Security

Having savings available during retirement could help offset Social Security COLAs that fail to keep up with inflation and give you more financial flexibility.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based in Ohio where she attended Ohio State University and lives with her two toddlers and her fiancé. His work has appeared in print and online publications such as Fox Business and Scotsman Guide.