The Social Security Administration (SSA) recently announced the 2025 cost-of-living adjustment (COLA) for Social Security benefits, bringing modest increases to help retirees keep up with inflation. This adjustment is essential, as Social Security forms an average of 30% of income for Americans aged 66 and older, according to SSA data. Furthermore, Social Security serves as the main source of income for 15% of women and 12% of men in the 65+ age group, covering 90% or more of their total income. While the COLA is designed to offset inflationary pressures, the most recent increase has not met retirees’ expectations.
2025 Social Security COLA Increase and Trends Over the Years
The SSA has introduced a COLA of 2.5% for 2025, slightly under the long-term average annual increase of 2.6% over the past two decades. While this adjustment means a small monthly benefit bump, many retirees feel it falls short of current needs. According to a survey by Motley Fool, 54% of retirees feel the increase is insufficient, with 31% calling it “completely insufficient.” Given that the average monthly benefit stands at $1,922, this 2.5% increase only adds about $48 monthly, totaling $577 annually.
Historical Social Security COLA Increases
| Year | COLA Increase |
|---|---|
| 2015 | 1.70% |
| 2016 | 0% |
| 2017 | 0.30% |
| 2018 | 2% |
| 2019 | 2.80% |
| 2020 | 1.60% |
| 2021 | 1.30% |
| 2022 | 5.90% |
| 2023 | 8.70% |
| 2024 | 3.20% |
| 2025 | 2.50% |
Current COLA and Inflation: What’s the Impact?
The current COLA is determined based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which reflects inflation experienced by urban workers. However, this measure may not accurately capture the inflation retirees face, particularly in categories such as healthcare. An alternative, the CPI-E (Consumer Price Index for the Elderly), emphasizes medical costs and could better represent retirees’ expenses, potentially leading to higher COLA adjustments. Without this change, COLAs may continue to provide only minimal support against rising costs.
Retirement Planning Beyond Social Security: A Diverse Approach
Relying solely on Social Security in retirement may not cover all financial needs. Building additional income streams for retirement is crucial. Here are some potential income sources retirees can consider:
- Social Security Benefits: Foundation for income but not the entire solution.
- Stock Dividends: Passive income through dividend-yielding stocks.
- Rental Income: Income from renting properties.
- Pension Plans: Income from pensions earned through various jobs.
- Part-Time Work: Pre-retirement or retirement part-time work.
- Bond and CD Investments: Interest-generating income.
- Inheritance or Reverse Mortgage: Other potential sources of funds.
Additional Strategies: Retirees can explore cashing out life insurance, taking a reverse mortgage, or converting a property for boarding to supplement income. Extending retirement by a few years can also increase disposable income and reduce reliance on Social Security.
Making Social Security Work in Your Retirement Plan
For optimal retirement security, retirees should plan to meet the majority of their needs independently, viewing Social Security as a supplementary income source. With a diversified retirement plan, individuals can ensure a more stable and comfortable retirement, irrespective of future COLA adjustments.
Planning and investing now are essential. By securing various income sources and minimizing reliance on Social Security alone, retirees can be better prepared for financial independence.