The cost of living adjustment (COLA) that comes with most seniors’ Social Security benefits every year is something that most of them know about.
COLAs are meant to help people keep up with inflation and keep their purchasing power, but they are not meant to make benefits better.
This is one of the main reasons why experts tell people who get benefits not to rely on them alone to meet their retirement obligations. Benefits were never meant to replace a salary; they were meant to cover about 40% of costs.
Even so, a lot of retirees depend on their Social Security checks to get by. With the 2.5% increase this year, a lot of them are not sure how they will pay their bills in the new year.
The effects of a low COLA on retirees’ Social Security benefits
For people who depend on Social Security in some way, the increase helps pay for things like Medicare. The average monthly Social Security payment will go from $1,927 in 2024 to $1,976 in 2025 when the 2.5% COLA is added.
That is only a $49 increase. When added to the previously announced Medicare Part B increase (the standard monthly premium for Part B is $174.70, but it will go up to $185 in 2025), beneficiaries will only have an extra $39 a month to cover their costs.
This does not mean that everyone will get the same raise; people whose checks are bigger will get more, and people whose checks are smaller will get less.
Some seniors are not even eligible for Medicare, so this situation does not apply to them because they can not get Medicare until they turn 65. They can start getting Social Security at age 62.
No matter what services you signed up for, the 2.5% increase will not be enough for most people to cover the rise in costs they experienced in 2024, when inflation was higher than the COLA in the first half of the year, let alone make up for some of the savings they used to cover the difference in what they thought their costs would be.
How to compensate for a small increase
Before getting older, it might be easier to say, “Just get a higher salary, a different job that pays better, or just move.” But as you get older, things might get trickier.
The ideas are still the same, and while it may be hard to make some changes to your lifestyle, the better money situation may be worth it.
Because benefits are based on your record rather than your address, the easiest and most effective way to make more money is to move to a cheaper part of the country.
It can be hard to leave family and friends behind, but the sooner you make your own way, the better, so you can build a support system you can use if you need it.
This also gives you the added benefit of getting extra money when you sell a house in a place with a higher cost of living and passive income when you rent it out.
You don’t have to move if you sell your home and move into a smaller one. You can also rent it out.
It might be tempting to keep the house, but think about how much of your income you will have to spend on it and whether there are other options that would fit your lifestyle better. It is also easier to clean, heat, and cool a smaller home.
If nothing else works, and you are still in good enough shape, you could try going back to work part-time for more freedom.
It does not have to be stressful or even in your field, but it would give you extra money and a chance to meet new people, which could help you avoid being alone.
