The 2025 Cost-of-Living Adjustment (COLA) will mean that monthly benefits will go up by 2.5%, according to the Social Security Administration (SSA).
Many people are worried that the adjustment will not be enough to cover rising living costs, even though it was meant to help beneficiaries keep up with inflation.
These changes have made retirees unhappy because they depend on these benefits as a big part of their income.
As the cost of living continues to rise, it is important to understand how the COLA affects your finances, look into ways to diversify your income, and take action to make sure you will be financially stable in retirement.
Here is a breakdown of the 2025 COLA, what it means, and what you can do to improve your retirement savings.
- The 2.5% COLA increase is slightly below the 20-year average of 2.6%.
- It will take effect starting January 1, 2025.
- A retiree receiving the average monthly benefit of $1,922 will see a monthly increase of $48, amounting to around $577 annually.
Historical COLA adjustments
Recent COLA increases reflect significant variation in adjustments over the years:
- 2022:Â 5.90%
- 2023:Â 8.70%
- 2024:Â 3.20%
- 2025:Â 2.5%
Even with these changes, a poll showed that 54% of retirees think the 2.5% increase is not enough to meet their financial needs, and 31% think it is completely inadequate.
How to diversify your income during retirement
Relying solely on Social Security benefits may not be enough to maintain your lifestyle. Diversifying income streams is a smart way to enhance financial security. Consider these options:
- Take on part-time work to supplement income and stay engaged.
- Invest in stocks, bonds, or mutual funds for long-term returns.
- Earn rental income from owned properties.
- Use savings accounts or certificates of deposit (CDs) for reliable interest.
- Leverage employer-provided pensions where available.
- Explore reverse mortgages for additional liquidity.
COLA calculations
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate the COLA, does not really show how seniors spend their money.
A lot of experts say that the Consumer Price Index for the Elderly (CPI-E) should be used because it puts healthcare costs at the top of the list, which are a big cost for retirees.
Tips to navigate financial challenges
- Reassess your budget:Â Look for areas to cut costs, such as switching to more affordable services or downsizing your home.
- Explore additional income opportunities:Â Take advantage of freelance or part-time work to boost your earnings.
- Plan strategically:Â Diversify your income sources and maximize your savings to build long-term financial security.
As prices go up and inflation rises, relying only on Social Security may not be enough to make sure a comfortable retirement. You can make your financial future safer and more stable by being proactive and looking into different ways to make money.