October is a pivotal month for seniors relying on Social Security, as it’s the time when the Social Security Administration announces the cost-of-living adjustment (COLA) for the following year. In 2023, beneficiaries saw an unprecedented 8.7% increase, the largest in decades, but 2024 brought a more modest rise of 3.2%. With inflation persisting, many are keenly awaiting the 2025 adjustment, though early indications suggest expectations should be tempered.
Earlier in the year, the Senior Citizens League, a nonpartisan group, forecasted a 1.75% increase for 2025. This estimate was later revised to 2.6% and, following recent inflation data in mid-May, slightly increased to 2.66%. While this is an improvement, it’s a far cry from recent years’ adjustments, leading some to feel underwhelmed.
“It may not be a number worth writing home about,” captures the sentiment surrounding the latest projection, reflecting the ongoing challenges that beneficiaries face in maintaining their purchasing power. The final figure, dependent on third-quarter inflation data, will be confirmed in October. Until then, these estimates serve as a crucial planning tool for those who depend heavily on Social Security for their retirement income.
Given the uncertainty and typically modest increases, financial planners often advise not solely relying on Social Security COLA for retirement stability. For retirees who find their income predominantly tied to Social Security, diversifying income sources, such as participating in the gig economy, can provide necessary financial relief. Activities like working local farmers’ market shifts or driving for ride-sharing services can supplement fixed incomes effectively.
For those still in the workforce, bolstering savings to reduce future dependency on Social Security is advisable. Achieving a balance where personal savings match or exceed Social Security benefits can mitigate the impact of fluctuating COLAs. This approach not only ensures a more stable financial future but also lessens the blow of potentially disappointing COLA announcements.
A Motley Fool survey from late 2022 highlights this issue further. After the announcement of the 8.7% COLA for 2023, over half of the respondents expressed dissatisfaction, feeling the increase was insufficient to cover rising living costs. This sentiment underscores the importance of managing expectations and preparing financially for less generous increases.
As Social Security recipients await the official 2025 COLA announcement, they are encouraged to consider strategies that enhance their overall financial resilience. Meanwhile, investment opportunities like those identified by the Motley Fool’s Stock Advisor service could provide another avenue for enhancing retirement funds, promising substantial returns and financial security in the long term.