Surviving Without a Social Security COLA

Retirees who rely on their monthly Social Security checks to make ends meet are coping with some bad news: There won't be a cost-of-living adjustment (COLA) in 2011. I was amused and bemused by the news reports that say it will be only the second year without an increase since automatic adjustments for inflation were adopted in 1975. When was the first year? 2010.

Faced with no increase in Social Security for two years in a row, retirees whose living costs — especially for health care — are increasing will have to close the gap somehow. The clearest options are by fattening up their income, putting their spending on a diet, or a combination of the two. While it's a bitter pill to swallow, there are ways to accomplish both.

Increase Your Income

Shop for better yields. You can increase your income from safe investments like money market funds, bank deposit accounts and certificates of deposit (CDs) simply by comparison-shopping. In fact, you may be able to double the interest you'll receive.

Invest in short-maturity bond funds. Short-term corporate and municipal bond mutual funds and exchange-traded funds (ETFs) are paying higher interest compared with so-called safe investments, albeit at some risk. If interest rates rise, you may suffer a small loss of principal, but I think it's a chance worth taking. Talk to your investment adviser.

Consider dividend stocks. If you own stocks or stock funds that are paying out little or no dividends, consider dividend stocks instead. If you prefer not to purchase individual stocks, then look into mutual funds and ETFs that invest in dividend stocks for added income.

Adjust withholdings or estimated taxes. If you usually receive a tax refund, increase your withholding allowances or reduce your estimated tax payments to get your hands on the money sooner. This solves your immediate cash-flow need and avoids giving what's tantamount to an interest-free loan to Uncle Sam.

Reduce Your Spending

Buy generics. It makes good sense and saves a lot of cents to buy generic prescription drugs and generic over-the-counter medicines. If you want to save even more, order them by mail. Don't stop there. Buy generic groceries at the supermarket and generic health care products at the pharmacy.

Leave the car at home. You can save a bundle by taking public transportation. If your community doesn't have public transit, form a carpool with your friends to go shopping.

Eat at cheaper restaurants. There are marvelous restaurants near you that serve good food, have good service and charge a lot less than you're used to paying for a night on the town. To further pinch pennies at restaurants, stick to tap water and take home leftovers for lunch the next day.

Use coupons. You'll be amazed how those nickels and dimes earned from coupons add up. A little effort can save you hundreds of dollars per year on groceries. If you shop online, be sure to search for an online coupon offer before making a purchase.

Appeal your property taxes. Surprisingly, a large percentage of people who appeal their real estate assessments end up with a lower bill. In many parts of the country, property values already have dropped, yet property taxes keep rising.

Vacation closer to home. There are probably great places to take a vacation near your hometown. Many people live close to destinations that other people travel hundreds or thousands of miles to visit. Enjoy them for a whole lot less.

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