The Social Security trustees recently announced there would likely be no cost of living adjustments to Social Security benefits for 2010 and 2011. If Social Security payouts remain flat as projected, next year will be the first year with no increase in monthly benefits since automatic cost of living adjustments were implemented in 1975.

With Medicare prescription drug premiums on the rise, some seniors who have these premiums deducted from their Social Security benefits may actually begin to see smaller monthly Social Security checks in the next year.

Senior citizens typically have higher out-of-pocket medical and drug costs than the general population. Because they are more likely to be on a fixed income, retirees have little flexibility to make financial adjustments when prices go up, or when they face a large, unexpected expense, such as making home or car repairs.

Given this developing situation, now may be an ideal time for those who receive Social Security benefits to consider their income needs. Seniors who expect to see their Social Security payments shrink because of increases in Medicare prescription drug premiums may need to look for new sources of income.

Depending on the health and interests of the retiree, possible sources of income could include part-time employment and beginning or increasing distributions from retirement accounts, or perhaps learning more about converting part of their retirement savings to an immediate annuity.

An immediate annuity functions as a “do-it-yourself” pension plan for retirees who want to turn part of their savings into a tax-advantaged, predictable stream of income.

The key is to plan for future income needs before it becomes a financial problem.

The information provided here is to assist you in planning for your future. Any analysis is a result of the information you have provided. Proper tax and legal advice should always be obtained.