Social Security COLA 2024: How to spend your bigger benefit, according to experts

Each year, Social Security payments are adjusted for inflation in an effort to help recipients maintain their purchasing power. The cost-of-living adjustment, or COLA, for 2024 will be 3.2%.

For Social Security retirement recipients receiving the average monthly benefit ($1,840.27 in August 2023), that’s equal to an extra $58.89 per month, or $706.68 per year.

While this year’s cost-of-living adjustment is down substantially from last year’s 8.7 percent increase — the biggest boost in over 40 years — any extra income is welcome news for retirees on fixed incomes.

“It may seem small, but when allocated wisely, it can make a significant difference in your financial well-being,” says Sean Lovison, a certified financial planner at Purpose Built Financial Services.

Here are a few ideas for how to spend that extra $58.89 per month and set yourself up for financial success.

Take care of living expenses

If Social Security is your only source of income in retirement, your bigger monthly payment will probably go toward covering everyday essentials. While inflation is down from its eye-catching 9.1 percent rate last summer, prices still remain stubbornly high.

Your extra $59 per month might barely cover the rent increase your landlord implemented, or it might help you afford groceries amid higher food prices.

If you’re living on a bare-bones budget, the best thing to do with your COLA increase is use it to pay for essentials.

Pay down debt

Credit card interest rates are now averaging a whopping 20 percent. If you can cover your essentials, your next priority should be paying off high-interest debt.

“Assuming [retirees] don’t need that immediate increase to cover living expenses, automating the transfer of that increase to things like paying down debt is a smart thing to do, especially given this high interest rate environment,” says Erik Baskin, a certified financial planner and founder of Baskin Financial Planning.

If your debt feels overwhelming, consider implementing a debt elimination strategy — such as the debt snowball or debt avalanche method — to make paying it down feel more manageable.

“When mortgages are over 8%, paying down debt starts looking more and more appealing,” says Baskin.

Save or invest it

Saving money for a rainy day is always a good idea, especially in retirement. From unexpected health care costs to home repairs, having an emergency fund is essential. Most experts recommend keeping at least six months (or more) worth of living expenses in cash.

But if you’re just storing your cash in a traditional savings account, you’ll lose purchasing power over time, especially with inflation sticking above the Federal Reserve’s 2 percent goal.

A high-yield savings account can be a great place to stash extra cash. Online banks are offering APYs of 4 percent to 5.5 percent — far above the rates you’ll find at brick-and-mortar banks. Ensure the account you choose is FDIC-insured, safeguarding your funds up to $250,000.

You might also consider inflation-indexed bonds, such as Series I bonds or TIPS. Both are backed by the U.S. government.

With TIPS, your principal amount adjusts upward with inflation. Interest payments also adjust upwards with inflation.

Certificates of deposit (CDs) may be another option to consider. Online banks are offering relatively high interest rates on these products as inflation cools, which could spell an opportune moment to lock in medium-term CD rates.

“CDs and high-yield savings accounts are paying rates not seen in decades,” says Lovison.

Invest in your health and wellness

Health care is one of the biggest expenses for retirees. A little prevention can go a long way, so consider putting extra money from your Social Security check toward something that improves your well-being.

You can save up to purchase a treadmill so you walk more or you can buy more fresh produce.

You could also sign up for a gym membership. Some YMCA locations offer senior discounts. You can also look into a fitness program called Silver Sneakers, a free gym membership benefit offered by some Medicare Advantage plans.

Treat yourself — a little

You probably can’t plan a dream vacation with an extra $59 a month, but consider spending part of your Social Security COLA on something that brings you joy.

Maybe that means buying new pots and pans for the kitchen, or hiring someone to clean up the house. Or you could treat yourself to a nice dinner or a night at the movies.

“Small splurges can bring a lot of happiness, whether it’s a gadget you’ve been eyeing or a weekend getaway,” says Lovison.

Finding extra “fun money” on a fixed income can be difficult. If your other needs are met, give yourself permission to indulge a little with your extra cash.

Give back to others

You don’t need to give a lot to make a difference. If you already donate $10 or $20 a month to your favorite charity, consider bumping up your contribution by another $10 or $20.

“Giving back while you are around to see the impact is a rewarding way to make a difference,”  says Lovison.

Donating to charity can also help you feel more connected to your community. Consider volunteering at your local library or animal shelter. And when they ask if you want to donate to their fundraiser, you can contribute an extra $20 without feeling guilty.

Bottom line

An extra $59 per month may not seem like much, but if you plan carefully, extra money from your Social Security check can help pay down debt or beef up your emergency fund. Treating yourself to something small is also an option. While it’s always tempting to spend a raise, putting your COLA to work in other ways can help you get your financial life off to a solid start in 2024.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.