While the 5.9% cost-of-living increase, effective January 1, 2022, is good news for retirees, it's driven by the steep rise in inflation in 2021. Inflation reduces consumer buying power, especially for those living on fixed incomes in retirement. As a result, much of the Social Security cost-of-living (COLA) increase is expected to be absorbed by the rising cost of goods and services, along with the $21.60 increase in the standard monthly premium for Medicare Part B enrollees from $148.50 in 2021 to $170.10 for 2022. The annual deductible for all Medicare Part B beneficiaries also rose to $233 in 2022, an increase of $30 from the annual deductible of $203 in 2021.1
"If you have concerns about the impact of inflation and higher healthcare costs on your income in retirement, it may be time to sit down with your financial advisor and talk about how a lifetime annuity can produce more of the reliable income you seek," Keady says.
Annuities are insurance products that can be used to provide guaranteed income for life. A personal annuity or after-tax annuity, for example, can help you build additional retirement savings and is not subject to income rules or contribution limits like your 401(k), 403(b) or IRA.
"For retirees, you want to be in a situation where you have a good amount of guaranteed income that is going to help shelter you from changing market and economic conditions," he says.
2. Create or grow your rainy day fund
Keady notes that a lot of retirees don't believe they need a rainy day fund, but that could be a mistake.
"Your emergency fund enables you to fund your essential needs in the event of what we refer to as an asset emergency," he says. "In other words, if investment values are down, you're better off if you're able to withdraw money from that emergency fund."
The problem is many retirees don’t think about that because they're focused on the low rate of return received from savings accounts or other locations where you may keep your rainy day fund. However, Keady points out that the cash you have in an emergency fund is also a hedge against market volatility. "You're not making money, but you're not losing money either," he says.
3. Look over your estate and legacy planning goals
The increase over the past two years in the number of people reprioritizing their financial and legacy goals has brought estate planning to the forefront once again. Prior to the pandemic, the percentage of people with estate plans had declined.
"Since the pandemic started, we've been in an environment where people are thinking not just about their legacy, but the footprint that they're leaving during their time on Earth," Keady notes.