Once the official announcement is made regarding the new cost-of-living adjustment (COLA) for 2025, the Social Security Administration is poised to incorporate it into next year’s Social Security benefits. Most retirees cannot do without Social Security since it provides around 30% of income to Americans aged 66 and older. According to the SSA, among persons aged 65 and older, 26% of women and 12% of men receive 90% or greater of their respective incomes from Social Security, one of the unique attributes of Social Security that individuals enjoy is that it has the inflation index thanks to cost-of-living adjustments.
There was hardly any jubilation around the announcement of the latest COLA. Americans celebrating in unison rejoiced with the announcement by Social Security that there will be an increase in monthly benefits as of January 1st. The cost-of-living adjustment—long viewed as a very important topic for millions who need Social Security benefits to support their living needs—has proposed an increase of 2.5% effective 2025. This rate is fairly consistent with the average annual increase of 2.6% across the past 20 years.
Some recent Social Security COLAs:
| Year | COLA Increase |
| 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% |
The first thing beneficiaries should realize is that they are among the small group believing that a 2.5% increase is little. A Motley Fool survey found that 54% of retirees felt it was an insufficient raise, with 31% of respondents describing it as “very insufficient.” Given that by September, the average monthly retirement benefit was $1,922, or slightly above $23,000 annually, it’s understandable why 48% of beneficiaries cannot rely solely on this income. A 2.5% increase would raise the average annual benefit to $23,641, which adds about $577 annually, or $48 monthly.Many still consider that this is far too inadequate, especially when inflation continues to chip away at purchasing power.
On the one hand, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) generally reflects the living costs of working-age wage earners or clerks, while the CPI-E is inclined to be more informative of the living standards of the older population, by reflecting the different costs closely related to their purchasing patterns, health care being an example.
How can beneficiaries save for retirement without relying too heavily on Social Security?
While larger Social Security checks are tied to higher earnings during a career, these amounts may still fall short of covering all needs. Thus, retirement planning is essential. Building multiple income sources can ensure a more stable financial future. Smart investments and diligent savings play a key role in retirement. Here are potential retirement income sources:
- Social Security benefits
- Income from dividends of stocks
- Rent from owned properties
- One or more pension plans
- Income from part-time work before retirement
- Proceeds from occasional stock sales
- Investments in bonds, CDs, and bank accounts
- Inheritance
Additional options to supplement retirement income include cashing out life insurance policies, reverse mortgages, or renting property space. Delaying retirement by just a few years can increase disposable income significantly.Regardless of your approach, striving to fund the majority of your retirement independently is advisable. Spending time crafting a thorough plan and seeing it through to completion will offer you and your family more financial support in retirement. Social Security will only pay for a portion of your retirement income, and it doesn’t necessarily need to be implemented as your base.
