Now retirees can get ready with the official announcement of the new cost of living adjustment (COLA) for 2025, the Social Security Administration (SSA) is all set to integrate this increase into next year’s Social Security benefits. For the majority of retirees, Social Security plays a crucial role, offering approximately 30% of the income for Americans aged 66 and older. Notably, the SSA highlights that among those aged 65 and above, 15% of women and 12% of men depend on Social Security for 90% or more of their income.
One of the standout features of Social Security is its ability to adjust benefits through cost-of-living adjustments, helping retirees maintain their purchasing power amid inflation. However, the announcement of the latest COLA didn’t generate much excitement.
When Will Social Security Issue the First payments with the COLA Increase?
On January 3rd, monthly benefits will see an increase. This COLA increase is a crucial update for millions who depend on Social Security to manage their living costs. The newly announced COLA for 2025 is set at 2.5%, closely aligning with the average annual raise of 2.6% observed over the past two decades. Here’s a quick look at some recent Social Security COLAs:
- 2023: 8.7%
- 2024: 3.2%
- 2025: 2.5%
This adjustment is a significant aspect for beneficiaries, as it can considerably impact their financial stability and quality of life.
Keep in mind that the fluctuations in the Cost-of-Living Adjustments (COLA) can be crucial for retirees relying on their benefits. Over the years, these COLA increases have varied significantly. Here’s a quick glance at how these adjustments have played out:
Annual COLA Increases
- 2015: 1.70%
- 2016: 0%
- 2017: 0.30%
- 2018: 2%
- 2019: 2.80%
- 2020: 1.60%
- 2021: 1.30%
- 2022: 5.90%
- 2023: 8.70%
- 2024: 3.20%
It’s no surprise that many beneficiaries feel underwhelmed by these increases, especially when a mere 2.5% rise seems trivial. A recent survey by the Motley Fool highlights this sentiment, revealing that 54% of retirees consider the adjustment inadequate, with 31% labeling it as “completely insufficient.” Given that the average monthly retirement benefit stood at $1,922 as of September, amounting to just over $23,000 annually, it’s easy to see why. A 2.5% increase only nudges this amount to $23,641—an additional $577 annually or roughly $48 per month.
The Need for a More Accurate Inflation Measure
The disappointment with COLA is likely to persist unless adjustments align with a more accurate measure of inflation. Currently, the adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which primarily reflects the expenses of the working class. However, the Consumer Price Index for the Elderly (CPI-E) may offer a more precise reflection of seniors’ spending patterns, with a particular focus on medical care, which has seen above-average price hikes.
Are you pondering how to plan your retirement without heavily relying on Social Security? While larger Social Security checks might stem from a successful career, they often fall short of fulfilling all your financial needs and desires. Therefore, strategic retirement preparation is crucial. Establishing a diverse range of income sources is a wise approach for ensuring financial security during your retirement.
Create Multiple Income Streams for Retirement
Wise investing and aggressive saving are essential components of a solid retirement strategy. Start by estimating the amount you’ll need in retirement and then develop a plan to achieve it. Consider the following potential income streams:
- Part-time work before fully retiring
- Social Security benefits
- Stock dividend income
- Rental income from properties you own
- Income from pension plans
- Retirement income from previous employment for you and/or your spouse
- Selling stocks from your portfolio if necessary
- Interest income from investments such as bonds, CDs, and bank accounts
- Inheritance
Explore Additional Revenue Opportunities
Think outside the box to uncover more revenue options. Consider possibilities like:
- Cashing out a life insurance policy
- Securing a reverse mortgage
- Renting out part of your property
Delaying your retirement by a few years can also significantly boost your disposable income. Aiming to fund the majority of your retirement independently is a prudent goal, regardless of your approach. Dedicate time to crafting a robust plan and ensure its effective implementation. Remember, Social Security is not likely to cover most of your retirement expenses, and you wouldn’t want it to.