Social Security recipients will be getting a lot of extra cash in 2023 thanks to the 8.7% cost-of-living adjustment (COLA) announced last week — the largest annual adjustment in more than 40 years. Average Social Security payments will be boosted by more than $140 a month in 2023, according to the Social Security Administration.

                By                    Vance Cariaga

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For many beneficiaries, the extra money is needed to pay for essentials in an economy where inflation has been running above 8% for much of 2022. According to research published by The Motley Fool, one in five married retired couples (and 45% of single retirees) depend on Social Security benefits for more than 90% of their income in retirement.

How Should You Spend Your COLA Cash?

But not all retirees are dependent on Social Security to pay for basic essentials. Those who have enough wealth saved up to use Social Security for discretionary spending can start strategizing over how to use the extra cash from the 2023 COLA.

The boost in benefits will allow some retirees to reduce how much they need to withdraw from their investment portfolios — an especially big help during periods of stock market volatility, said Katherine Tierney, a chartered financial analyst and senior retirement strategist at Edward Jones.

Social Security recipients can also consider putting the extra dollars towards their cash reserves, Tierney added. As a general rule, she recommends that retirees maintain about one year’s worth of spending in cash and up to three months’ worth of spending in an emergency fund. She also recommends that another three to five years’ worth of spending be held in short-term fixed-income investments, which currently offer better income opportunities because of interest rate hikes.

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Meanwhile, many retirees will save even more money through reduced Medicare costs after the Centers for Medicare and Medicaid Services recently announced that premiums for Medicare Part B, Medicare Advantage and Medicare Part D will all be lower in fiscal year 2023 vs. 2022.

Lower Medicare premiums will help retirees “realize the full power of the 2023 COLA increase” by giving them even more money, said David Freitag, CLU, a financial planning consultant and Social Security expert with MassMutual.

For Social Security recipients who do want to put the extra COLA money toward paying bills, a good place to start is with core expenses such as utilities, food and healthcare, said Will Rogers, a certified financial planner and private wealth advisor at Ameriprise Financial.

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