Relying solely on Social Security for income is not ideal, just as it is not desirable to have the majority of your earnings dependent on these monthly payments. Many elderly individuals find themselves in this situation currently. Consequently, the yearly adjustments to Social Security benefits known as cost-of-living adjustments (COLAs) hold significant importance.
COLAs help Social Security recipients keep up with the rising cost of living due to inflation. Every year, beneficiaries receive an automatic COLA adjustment determined by inflation data from the third quarter.
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Social Security cost-of-living adjustments (COLAs) are calculated using the changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the months of July, August, and September. Although the CPI-W data for July will be released shortly, we will have to wait for the data for August and September.
October 10 is the expected date for the release of September’s CPI-W data. Following this, the Social Security Administration can declare the official COLA. However, whether seniors will be satisfied with this figure remains uncertain.
Retirees should prepare themselves for some negative information.
The COLAs A government program that provides financial assistance to eligible individuals, typically retirees or those with disabilities. The benefits received by recipients in recent years have been quite generous. In 2024, there was a 3.2% increase in benefits. In 2023, benefits saw a significant 8.7% increase after a time of high inflation in 2022.
However, it appears that the Cost of Living Adjustment (COLA) for next year will be significantly reduced. The exact amount of the reduction will not be known until October.
The first estimates indicate a A cost-of-living adjustment (COLA) of 2.63% will be implemented in 2025. However, considering the current trend of inflation, it is reasonable to assume that the figure may decrease.
Certainly, while there is a possibility that the Social Security cost-of-living adjustment (COLA) for 2025 may exceed 2.63%, it is unlikely to fully offset the effects of inflation. This is because COLAs typically struggle to match the rate of inflation.
A recent Survey conducted by Motley Fool A survey of retired individuals showed that 62% believe that the 3.2% cost of living adjustment (COLA) for 2024 is not enough. Additionally, 44% of the participants have thought about returning to work as their Social Security benefits are not sufficient to meet their expenses.
Strive to reduce dependence on cost-of-living adjustments for Social Security.
Retirees at present may have to rely on optimism for the upcoming COLA. However, if you are not retired yet, you have a great chance to prepare yourself to be less concerned about future Social Security COLAs by increasing your savings now.
Having a bigger savings cushion when you retire means you won’t have to depend as much on Social Security. It’s possible to boost your savings even if you’re late in your career by being mindful of your expenses and focusing on saving more money. 401(k) or IRA .
For instance, consider a scenario where you are 50 years old and have not saved any money yet. If you start saving $500 per month for the next 20 years and your investment portfolio generates an average yearly return of 8%, which is slightly lower than… the mean value of the stock market If you save consistently, you will accumulate a retirement fund of approximately $275,000. This amount surpasses the typical retirement savings balance of $200,000 for Americans aged 65 to 74, as reported by the Federal Reserve.
To reduce your dependence on Social Security cost-of-living adjustments (COLAs) in the future, one alternative is to postpone claiming your benefits. the age at which a person is eligible to receive full retirement benefits If you can wait until age 70 By increasing your monthly payments, you can significantly increase the amount you receive regularly. This means that even if the cost-of-living adjustments you receive are minimal, you will still have a higher starting point.
