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.

COLA 2025: key details

• 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

Significant changes in adjustments over time are shown in recent COLA increases:

• 2022: 5.90%
• 2023: 8.70%
• 2024: 3.20%
• 2025: 2.5%

According to a poll, 31% of retirees believe the 2.5% rise is totally insufficient to satisfy their financial demands, while 54% of them feel it is insufficient despite these modifications.

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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