We’re taking a swig of some big news, fresh from the Social Security Administration.
They’ve announced that the COLA—the Cost-of-Living Adjustment—for 2022 will be 5.9%. Payments for January 2022 will be increased by that amount.
Who doesn’t like getting a raise? But let’s think about how we earned this one.
Our cost of living has been rising. Inflation is running at levels we have not seen in decades. And the laws governing Social Security benefits call for annual adjustments to help offset the rise in the cost of living. In other words, our expenses have been rising for some time, and this “raise” will help us get back some of the purchasing power we have lost.
Inflation has other ramifications, too. Sometimes we assume that financial things with stable values are safe. Savings accounts or certificates of deposit, bonds, and other fixed-income investments generally do offer more stability than long-term equity investments such as common stock.
But perhaps the news from the Social Security Administration is a chance to remember that our cash on-hand pretty much always buys less this year than it did last year—because of the cost of living. If we make 1% interest while prices rise 5%, we are going backward in purchasing power over time.
When there was little inflation, our cash cushions did not cost us a lot. We love the sensation of having the money we need, readily at hand. Funds for emergencies or opportunities are always good to have.
But the purchasing power of excess cash laying around is melting away, day by day. It might pay to consider whether more should be committed to long-term investments.
Clients, if you would like to talk about your cash cushion or anything else, please email us or call.
Investing includes risks, including fluctuating prices and loss of principal.
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