In 2025, millions of retirees will get a COLA increase that is less than what was predicted. With yearly cost of living adjustments, the Social Security Administration tries to make up for the fact that people can’t buy as much because of inflation.
But it doesn’t look like a 2.5% rise is enough. Remember that COLA might not be able to keep up with the rate of inflation right now. Social Security uses the CPI-W, which is for Urban Wage Earners and Clerical Workers. This means that it might not show how much prices have really gone up for seniors since they leave.
Example of how COLA may not reflect retirees’ needs
As a wage earner or clerical worker in a city, you might not need health care as much as seniors do. That is, seniors lose purchasing power if the rising cost of health care is not taken into account.
Reports show that adults getting Social Security have lost the ability to buy things over the last 14 years, which supports this idea. A group called the Senior Citizens League says that since 2010, retirees have lost 20% of their buying power.
According to another study from the Senior Citizens League, Social Security has lost 36% of its purchasing power since the start of the 21st century in 2000. You cannot just depend on Social Security to cover your costs, as you can see. The plan was never for things to get that bad, but many workers haven’t saved enough or invested enough for retirement.
Key strategies not to rely on Social Security COLA increases
Starting to save money early is very important. Don’t forget about your IRA, Roth IRA, or 401(k) plans that you use to save for retirement. Try to make the most of what you can contribute and raise it over time.
As a worker, you may start making less money, so when you get promoted, make these efforts even bigger. Don’t depend on just one source of income. It’s said that you should never put all your eggs in one basket.
So, invest in:
- Bonds
- Stocks
- Mutual funds
- Real state
- Passive income
Another great way to make more money in retirement is to put off getting Social Security until you are 70, if you can. Set aside money every month for spending, and pay off any debts with high interest rates.
Another great idea is to have a disaster fund. Another good idea is to get help from a professional. Lastly, make plans ahead of time for how much healthcare will cost!
