According to Vibes.okdiario , Retirees should prepare for the upcoming 2025 Cost-of-Living Adjustment (COLA) announcement, as the Social Security Administration (SSA) prepares to integrate this increase into next year’s benefits. Social Security is a key source of income for many retirees, with about 30% of Americans aged 66 and older relying on it. For some, it’s even more critical — the SSA reports that 15% of women and 12% of men over 65 depend on Social Security for 90% or more of their income.
One of Social Security’s most valuable features is its ability to adjust benefits for inflation through COLA, helping retirees maintain their purchasing power. However, this year’s COLA announcement has not sparked much excitement among recipients.
When Will Social Security Payments Reflect the COLA Increase?
Starting January 3, 2025, monthly Social Security benefits will increase by 2.5%, the COLA for 2025. This increase aligns closely with the average annual raise of 2.6% seen over the past two decades. For comparison, here’s a look at some recent Social Security COLAs:
- 2023: 8.7%
- 2024: 3.2%
- 2025: 2.5%
While this COLA increase may seem small, it remains important for millions of Americans who rely on Social Security to cover their living expenses.
Recent Social Security COLA History
Over the years, the COLA has fluctuated significantly, reflecting varying inflation rates. Here’s a snapshot of recent annual COLA increases:
- 2015: 1.7%
- 2016: 0%
- 2017: 0.3%
- 2018: 2%
- 2019: 2.8%
- 2020: 1.6%
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
For many retirees, a 2.5% increase falls short of expectations. A recent survey by Motley Fool found that 54% of retirees feel the increase is inadequate, with 31% describing it as “completely insufficient.” For example, the average monthly retirement benefit as of September 2024 is $1,922, or about $23,000 annually. A 2.5% COLA increase would only raise this amount to $23,641—an additional $577 annually or approximately $48 per month.
The Case for a More Accurate Inflation Measure
The dissatisfaction with the COLA increase is likely to continue unless adjustments are based on a more relevant inflation measure. Currently, COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which mainly reflects the spending habits of working-age individuals. Retirees, however, have different spending patterns, particularly when it comes to healthcare costs, which have risen faster than other expenses. The Consumer Price Index for the Elderly (CPI-E), which focuses more on the costs seniors face, could provide a more accurate reflection of inflation for older Americans.
Preparing for Retirement Beyond Social Security
Although Social Security benefits can help support retirees, they often aren’t enough to cover all retirement expenses. To ensure financial security in retirement, it’s important to build multiple income streams. Here are some strategies to consider:
Traditional Income Sources:
- Part-time work before fully retiring
- Social Security benefits
- Pension income
- Retirement benefits from past employment
- Rental income from properties
- Stock dividends
- Interest from investments (bonds, CDs, etc.)
Additional Revenue Opportunities:
- Cashing out a life insurance policy
- Securing a reverse mortgage
- Renting out part of your home
Another option to increase your disposable income is to delay retirement for a few years. Postponing retirement can significantly boost your Social Security benefits and your financial security in retirement.
Also Read – Social Security Payments This Month – SSI And SSDI Recipients To Get Check Of $696 & $1,542
Creating a Robust Retirement Plan
Social Security should not be the sole source of income in retirement. A strategic approach to retirement planning is crucial. Start by estimating how much you will need in retirement, and create a plan to meet those needs. By diversifying income sources and making smart investments, you can ensure that your financial future is secure, even if Social Security payments don’t fully cover your expenses.
Remember, while Social Security can offer some financial relief, the majority of your retirement income will likely need to come from other sources. Start preparing today to build a stable and fulfilling retirement.
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