Goodbye to cost-of-living adjustment in 2024: U.S. government warns of changes after 2025

For the 2025 Cost-of-Living Adjustment (COLA), the Social Security Administration (SSA) has announced a 2.5% increase in monthly benefits. Although the adjustment is meant to assist beneficiaries stay up with inflation, many worry that it won’t be enough to keep up with growing living costs. Retirees who rely substantially on these benefits as a sizable portion of their income are disappointed by this.

Understanding the impact of the COLA, investigating income diversification techniques, and adopting proactive measures are crucial for guaranteeing financial stability during retirement as the cost of living keeps rising. This article explains the 2025 COLA, its effects, and practical ways to improve your retirement savings.

Cost-of-Living Adjustment (COLA) for 2025

2025’s Cost-of-Living Adjustment (COLA) is 2.5%, which is little less than the average of 2.6% over the previous 20 years. On January 1, 2025, this change will go into force, affecting millions of Americans who are retired. This rise amounts to an extra $48 each month, or around $577 yearly, for individuals who receive the average monthly benefit of $1,922.

COLA changes have varied significantly over time. The number of retirees increased by 5.9% in 2022 and by an unprecedented 8.7% in 2023. With a 3.2% increase in 2024 and an impending 2.5% increase in 2025, the changes have now slowed.

Even with these modifications, a large number of retirees believe they are not enough to solve their financial difficulties. According to a recent survey, 31% of seniors think the 2.5% raise is totally insufficient to meet their demands, while 54% of them think it is insufficient. These opinions emphasize how difficult it is for retirees to keep their purchasing power in the face of growing expenses.

How to diversify your income during retirement

You might not be able to sustain your lifestyle if you only receive Social Security income. One wise strategy to improve financial stability is to diversify your sources of income. Think about these choices:

1. Take on part-time work to supplement income and stay engaged.
2. Invest in stocks, bonds, or mutual funds for long-term returns.
3. Earn rental income from owned properties.
4. Use savings accounts or certificates of deposit (CDs) for reliable interest.
5. Leverage employer-provided pensions where available.
6. Explore reverse mortgages for additional liquidity.

COLA calculations

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), on which the COLA is based, is not a reliable indicator of seniors’ spending patterns. The Consumer Price Index for the Elderly (CPI-E), which gives healthcare costs first priority as a major expense for retirees, is recommended by several experts.

Tips to navigate financial challenges

• Reassess your budget: Look for areas to cut costs, such as switching to more affordable services or downsizing your home.
• Explore additional income opportunities: Take advantage of freelance or part-time work to boost your earnings.
• Plan strategically: Diversify your income sources and maximize your savings to build long-term financial security.

Relying only on Social Security income might not be sufficient to guarantee a pleasant retirement if inflation and living expenses increase. You may build a more solid and secure financial future by being proactive and investigating several sources of income.

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