With the official announcement of the new cost of living adjustment (COLA) for 2025, retirees can get ready. This raise will be added to next year’s Social Security benefits by the Social Security Administration (SSA).
Social Security is very important for most seniors because it provides about 30% of income for Americans aged 66 and up. SSA points out that among people aged 65 and up, 15% of women and 12% of men count on Social Security for 90% or more of their income.
One great thing about Social Security is that it can change benefits based on the cost of living. This helps retirees keep their buying power even as prices go up. But when the new COLA was announced, it did not get people very excited.
When Will Social Security Issue the First payments with the COLA Increase?
The regular benefits will go up on January 3rd. This COLA increase is very important news for the millions of people who count on Social Security to pay their bills.
The new COLA for 2025 is set at 2.5%, which is very close to the average yearly raise of 2.6% seen over the last 20 years. Take a quick look at some of the most recent Social Security COLAs:
- 2023: 8.7%
- 2024: 3.2%
- 2025: 2.5%
This change is important for beneficiaries because it can have a big effect on their quality of life and financial security.
Remember that changes in the Cost-of-Living Adjustments (COLA) can be very important for retirees who depend on their payments. These COLA raises have changed a lot over the years. Take a quick look at how these changes have worked 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 is not a surprise that many people who are supposed to benefit from these raises are disappointed, especially since a 2.5% rise seems like a small amount. 54% of retirees think the adjustment is not enough, and 31% say it is “completely insufficient.”
This is supported by a recent poll by the Motley Fool. It is easy to understand why, since the average monthly retirement income in September was $1,922, or just over $23,000 a year.
A 2.5% rise would only bring this amount up to $23,641, which is an extra $577 a year, or about $48 a month.
The Need for a More Accurate Inflation Measure
People are likely to stay unhappy with COLA unless changes are made that match a more true measure of inflation. At the moment, the changes are based on the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers.
This index mostly shows how much the working class spends. The Consumer Price Index for the Elderly (CPI-E), on the other hand, might give a more accurate picture of how seniors spend their money, especially on medical care, where prices have gone up more than usual.
Are you thinking about how to save for retirement without depending too much on Social Security? A successful job may lead to bigger Social Security checks, but they usually are not enough to meet all your financial needs and wants.
So, planning for retirement in a smart way is very important. Setting up a variety of income streams is a smart way to make sure you will have enough money in retirement.
Create Multiple Income Streams for Retirement
Smart investments and bold savings are two important parts of a good plan for retirement. First, guess how much money you will need when you quit. Then, make a plan to get it. Take a look at these possible ways to make money:
- Work part-time before giving up all of your jobs
- Benefits from Social Security
- Income from stock dividends
- Getting rental cash from the homes you own
- Getting money from pension plans
- Retirement income from jobs you and/or your spouse used to have
- If you have to, sell stocks from your investments.
- Money earned from assets like bonds, CDs, and bank accounts
- Passing on
Explore Additional Revenue Opportunities
Think outside the box to find new ways to make money. Think about options such as
- Getting money out of a life insurance policy
- How to get a reverse mortgage
- Putting some of your home up for rent
Putting off retirement for a few years can also give you a lot more money to spend. No matter what you do, your goal of paying for most of your retirement on your own is a good one.
Spend time making a strong plan and making sure it gets carried out well. Keep in mind that Social Security probably will not cover most of your costs in retirement, and you would not want it to.