Here’s What to Do With the Biggest Retiree Pay Raise in Decades

Here’s What to Do With the Biggest Retiree Pay Raise in Decades
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Military retirees, VA beneficiaries, Survivor Benefit Plan annuitants, and Social Security recipients are on track to receive the highest cost-of-living adjustment (COLA) in over 40 years. The 8.7% increase means the average monthly Social Security check will increase by about $144 in 2023, and a military retiree or annuitant will see an extra $87 per $1000 of pay each month.  


The adjustment is designed to keep your benefit strong against inflation, and for many, the money will be necessary to stave off debt and keep up with rising costs. However, for those facing less-immediate financial needs, there are ways to make the money work toward your financial goals.


Lower Your Personal Inflation Rate

COLA increases are based on something called the CPI-W, or the Consumer Price Index for Urban Wage Earners and Clerical Workers. This measures changes based on prices paid by certain urban workers for a basket of consumer goods and services. Some say CPI-W isn’t a good measure of inflation for older Americans because they don’t face the same expenses urban workers do.




Typically, seniors have lower transportation costs but higher medical costs than the average worker. But military retirees have an advantage when it comes to medical costs, so it is very possible that a military retiree or a VA beneficiary, especially one living in a non-urban area, could have a substantially lower personal inflation rate than what the Bureau of Labor Statistics (BLS) uses to calculate COLA.


You can also control or cut back on what you spend in certain categories, such as eating out, recreation, wireless service, and education and communication – all categories the BLS uses in its COLA calculations – so you actually see a net increase in your monthly income even if prices in some other areas such as food and gasoline have gone up.


Pay Down Debt

If you do have some extra money in your pocket thanks to COLA, you should first make sure you are not carrying any costly consumer debt with a high interest rate. Assuming you already have a healthy emergency fund, if you are carrying a balance on your credit card, paying it off should be the first order of business.


The average credit card interest rate in the US is 16.65%, much higher than any investment will net you.


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(Try to) Beat Inflation

If you have your savings in a large bank with a brick-and-mortar presence, chances are you are getting a lousy interest rate. The average annual percentage yield (APR) for a savings account is only 0.14%, according to Bankrate. You could do much better putting your money in an online bank in a High Yield Savings Account. There are FDIC/NCUA insured online accounts with rates of 3% and higher.


If you have $25,000 in savings and move it from an account with a 0.14% APY to an account with 3% APY, you could put over $700 more per year in your pocket.


I bonds are another great way to beat inflation – after all, the “I” in the name stands for “inflation.” You can read more about them here. They are currently at an impressive 9.62% annual rate, a figure partially based on the Consumer Price Index that will adjust in November.


While you can only invest $10,000 per year in these bonds, it is possible to purchase multiple $10,000 bonds in one year if you give them as gifts.


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Be Charitable

If you have some extra cash, charitable donations can not only make you feel like you are giving back to your community, they can also lessen your tax burden. There is no word yet whether the $300 charitable deduction that was available in 2021 will be back, but those who are able to itemize on their tax returns may deduct qualified contributions of up to 100% of their adjusted gross income.


And lifetime gifting can be a powerful estate planning tool, as well as a way to help your loved ones in the here and now.


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About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.