The Social Security Administration recently announced a new cost-of-living adjustment for the coming year. While an increase in benefits may provide welcome relief, the practical impact on any household depends on the full picture: Medicare costs, taxes, spending needs, other income sources, and the timing of retirement decisions.
For pre-retirees and retirees across Central Maryland, this announcement is a helpful prompt to revisit how Social Security fits into a broader retirement income plan. At Wealth Diversified, we believe these updates are most useful when they are considered alongside the rest of your financial life—not in isolation.
Why a COLA Matters
A cost-of-living adjustment, commonly called a COLA, is intended to help Social Security and Supplemental Security Income benefits keep pace with inflation. When the cost of everyday goods and services rises, an adjustment can help beneficiaries maintain more of their purchasing power.
That said, every recipient’s increase will look different because it is based on their individual benefit amount. More importantly, the benefit change is only one part of a household’s monthly cash flow. A higher Social Security payment does not necessarily mean a person will have the same increase available for discretionary spending.
For retirees who rely on Social Security as a foundational source of income, reviewing the updated amount can be a worthwhile part of an annual retirement check-in.
How the Social Security Adjustment Is Calculated
Social Security adjustments are determined using changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, often referred to as CPI-W. The formula compares inflation data from a defined period with the same period from the prior year.
This process provides a consistent, rules-based way to determine whether benefits should rise. However, household expenses do not always move in lockstep with the index. One retiree may see meaningful increases in medical, housing, or caregiving costs, while another may experience different spending pressures.
That is why an annual adjustment should be viewed as a useful update rather than a complete measure of whether a retirement plan remains on track.
Medicare Costs Can Affect Your Net Increase
For many people, Medicare Part B premiums are deducted directly from Social Security benefits. If Medicare premiums or other healthcare costs change, they may reduce how much of the benefit adjustment is reflected in a monthly bank deposit.
When your updated notice becomes available, consider reviewing both your Social Security benefit and your Medicare-related deductions. Looking at them together can provide a clearer picture of the income you will actually have available each month.
Healthcare is also an important long-term planning consideration. Retirement expenses can change over time, especially as medical needs evolve. A plan that accounts for both routine healthcare expenses and potential future care needs may help families feel more prepared.
Working While Receiving Social Security
Individuals who are still working while receiving Social Security retirement or survivor benefits may also want to pay attention to the annual earnings test. The rules differ depending on whether someone has reached full retirement age.
For those below full retirement age, earnings above the applicable limit can affect current benefit payments. Different rules apply in the year a person reaches full retirement age, and the earnings limit no longer applies after that point.
Because work income, benefits, taxes, and retirement timing can interact in important ways, it can be helpful to review these decisions before making changes to employment or claiming plans.
Review Your Retirement Income Plan
A new COLA is an appropriate time to step back and assess your overall retirement income strategy. Start by confirming your updated benefit amount, then compare it with your current budget and expected expenses for the year ahead.
Consider whether changes in healthcare costs, housing expenses, insurance, travel, family support, or other priorities could affect your cash flow. If you are nearing retirement but have not yet claimed benefits, it may also be a good time to revisit how different claiming timelines could fit your needs and goals.
At Wealth Diversified, our retirement planning process focuses on helping clients in Frederick, Germantown, Gaithersburg, North Potomac, and surrounding Maryland communities understand the relationship between Social Security, investments, retirement income, risk management, and legacy planning. The goal is not simply to react to an annual change. It is to create a clearer plan for the years ahead.
Practical Steps to Take
- Review your Social Security notice.
Check your updated benefit information through your personal my Social Security account or the notice you receive.
- Update your household budget.
Compare expected income with anticipated spending, including healthcare and insurance costs.
- Check Medicare information.
Understand whether premium changes affect the amount that will reach your account each month.
- Revisit your claiming strategy.
If you have not started benefits, consider how timing fits with your retirement income needs and family circumstances.
- Coordinate the full plan.
Make sure Social Security decisions align with your investment strategy, withdrawal approach, tax planning conversations, and estate planning coordination.
A Local, Personal Planning Conversation
Social Security can be a meaningful part of retirement income, but it is rarely the only part. A thoughtful plan considers how each source of income works together and how your strategy may need to adapt as life changes.
Wealth Diversified helps individuals and families throughout Central Maryland approach retirement planning with clarity and education. Whether you are preparing to claim Social Security, already receiving benefits, or simply want a second opinion on your retirement income strategy, a conversation can help you identify the questions that matter most to you.
FAQ
Will everyone receive the same dollar increase?
No. The adjustment is applied to each person’s current benefit, so the dollar change varies by beneficiary.
When will the updated benefit amount be available?
Social Security beneficiaries generally receive updated information through their personal my Social Security account or through a mailed notice. Review your individual notice for the most accurate details.
Can Medicare premiums reduce the impact of a COLA?
Yes. Medicare Part B premiums are commonly deducted from Social Security payments, so changes in those premiums can affect the net amount you receive.
Does a COLA change the best time to claim Social Security?
Not by itself. Claiming decisions should be evaluated in the context of your health, work plans, income needs, longevity considerations, marital status, and broader retirement strategy.
How can Wealth Diversified help?
Wealth Diversified can help you place Social Security decisions within a broader retirement plan that considers income needs, investment management and diversification, healthcare planning, insurance strategies, and estate and legacy goals.
This commentary was prepared by a 3rd party LEVITATE for Mark Schlosssenberg. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party. The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended. This is not endorsed or affiliated with any federal Social Security Administration or Medicare program, nor any U.S. government agency. If applicable, we do not offer every plan available in your area and contacting us will direct you to a licensed insurance agent. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.Gov or 1-800-MEDICARE to get information on all of your options.
