Millions of retirees will receive a lower-than-expected COLA increase in 2025. The Social Security Administration tries to make up for the loss of buying power due to inflation by using annual cost of living adjustments.
However, a 2.5% increase does not seem to be enough. Bear in mind that COLA may not keep up with the current inflation. Since Social Security uses the CPI-W, and it is for Urban Wage Earners and Clerical Workers, it may not reflect the true rise in prices seniors face in retirement.
Example of how COLA may not reflect retirees’ needs
If you are an Urban Wage Earner or a Clerical Worker, you may not need to rely on healthcare as much as retirees do. So, if the cost of healthcare services is increasing but it is not taken into account, retirees lose buying power.
To support this theory, there are reports to prove that seniors receiving Social Security have lost buying power in the last 14 years. The Senior Citizens League claims that retirees have lost 20% of purchasing power since 2010.
Another report from the Senior Citizens League states that Social Security has lost 36% of its buying power since the beginning of this century, 2000. As you can see, it is not possible to rely on just Social Security to make ends meet. It has never meant to be like that, but many workers have neglected their savings and investments for retirement.
Key strategies not to rely on Social Security COLA increases
One of the most important things is to start saving money early. Do not neglect your retirement saving accounts like IRA, Roth IRA, or 401(k). Try to maximize your contributions and increase them over time.
Workers often start earning lower wages, so when you are promoted boost these contributions. Never rely on one just income source. Remember the saying, never put all your eggs in one basket.
So, invest in:
- bonds
- stocks
- mutual funds
- real state
- passive income
Delaying Social Security until you are 70 if possible is another great to boost your earnings in retirement. Stick to a monthly budget and deal with any debt you may have to get rid of high interest rates. Having an emergency fund is also a great possibility. hiring a professional to help you is another good idea. Last but not least, plan healthcare costs beforehand!
