Facebook-f Twitter Linkedin-in Youtube Phone
Facebook-f Twitter Linkedin-in Youtube

What Are COLAs and How Do They Affect Retirement

What Are COLAs and How Do They Affect Retirement Hilltop Wealth Solutions

If you are currently receiving Social Security or you are considering how Social Security might factor into your retirement plan, it’s important for you to understand what COLA stands for. You may have seen the acronym in various information about Social Security, and you may have wondered what it meant. Well, let’s answer your questions about the term.

What is a COLA?

COLA stands for “cost of living adjustment.”[1] It’s an automatic increase in the payout of Social Security benefits that is meant to counter inflation. [1] The amount Social Security is increased by is based on the CPI-W, which stands for the “consumer price index for urban wage earners and clerical workers.”[2] Essentially, the CPI-W is calculated using the prices for common goods that people purchase in their everyday lives, such as food, clothing, medical care, recreation, and other common purchases.[2] It’s a way for the government to track the increase in the general cost of living for most people.

How Do COLAs Work?

So, in a nutshell, the COLA is a way that your Social Security will be adjusted automatically to increase based on the current price of goods on the market.

One of the more important things to consider when it comes to your retirement and the COLA is that the longer you wait to receive your benefits, the more the COLA will increase your payouts.[3] You are allowed to withdraw your Social Security at 62, but you will get a permanently reduced payout.[3] This reduction in payout will cause the COLA increases in your payments to be less than if you had waited to claim your social security at your full retirement age.[3]

Here’s an example to illustrate this point:

If you receive $10,000 yearly in Social Security benefits at full retirement age, an 8% COLA increase will cause you to receive an additional $800 a year for the rest of your life. If you claim your Social Security early and you get $7,000 in Social Security, an 8% COLA increase will cause you to gain an additional $560 a year for the rest of your life. So, claiming early can not only decrease your initial payouts, but it will also decrease your COLA adjustments as well.

Retirement has a lot of rules and different elements that it can be important to know. If you are looking for a guide to help you navigate your retirement planning, consider reaching out to one of our professionals today for a complimentary review of your finances.

 

Hilltop Wealth Solutions (“Hilltop”) is a registered investment advisor with the Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure and Client Relationship Summary (Form CRS) for additional information regarding the qualifications and business practices of Hilltop. Hilltop Wealth Solutions, LLC is an SEC Registered Investment Adviser firm. Hilltop Tax Solutions, LLC, is an affiliate of Hilltop. Wealth Solutions that provides tax and bookkeeping services.
Archived Posts
Share This Post!
Facebook
Twitter
LinkedIn

© 2022 Hilltop Wealth and Tax Solutions

Website Disclosures

Hilltop Wealth Solutions (“Company”) is an SEC registered investment adviser located in Mishawaka, IN with branch office located in MI and other locations throughout IN.  The Company may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.  The Company’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.  Accordingly, the publication of the Company’s web site on the Internet should not be construed by any consumer and/or prospective client as the Company’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by the Company with a prospective client shall be conducted by a representative that is either registered or qualified for an exemption or exclusion from registration in the state where the prospective client resides.  For information pertaining to the registration status of the Company, please contact the SEC or the state securities regulators for those states in which the Company maintains a notice filing.  A copy of the Company’s current written disclosure statement discussing Company business operations, services, and fees is available by going online via the SEC’s Investment Advisers Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC #801-115255.

The Company does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to the Company web site or incorporated herein and takes no responsibility, therefore.  All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by the Company, will be profitable or equal any historical performance level(s).

Certain portions of Company web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, the Company (and those of other investment and noninvestment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from the Company, or from any other investment professional.

The Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.

Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Company is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of the Company by any of its clients.  Rankings published by magazines and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.  Rankings are generally limited to participating advisers.

To the extent that any client or prospective client utilizes any economic calculator or similar interactive device contained within or linked to the Company web site, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from the Company, or from any other investment professional.

Each client and prospective client agrees, as a condition precedent to his/her/its access to the Company web site, to release and hold harmless the Company, its officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from the Company.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Client Login
Contact Us