Title: Crucial Facts for Retirees: Understanding Social Security COLA Adjustments
Title: Crucial Facts for Retirees: Understanding Social Security COLA Adjustments
So, you're a retiree or about to be one, and you're wondering how Social Security helps you combat inflation? Well, look no further than cost-of-living adjustments, aka COLAs.
1. Based on inflation rate
The Social Security Administration doesn't just pull numbers out of thin air when it comes to these adjustments. Instead, they consider the overall inflation rate from the previous year, as determined by a different government agency: the Department of Labor's Bureau of Labor Statistics. The 2.5% increase for 2025, for example, is based on price increases from 2024.
2. Not one size fits all
While the average Social Security payment is $1,976, it's important to remember that not everyone will see the same increase. The 2.5% increase applies to the amount of Social Security income you were already receiving. Those collecting more will benefit from a larger increase, while those with smaller payments may see a relatively smaller increase.
3. Timing is everything
October may be when the COLA announcement is made, but the actual increase won't appear until January of the following year. For example, the 2.5% increase for 2025 only began to be seen in January of 2025.
4. It's automatic
One thing's for certain—you don't have to do anything to receive your COLA. The Social Security Administration will automatically increase your monthly payment and deposit it into your bank account. No need for a trip to the office.
5. Still not enough
While COLAs aim to keep up with inflation, The Senior Citizens League suggests that they may not fully account for rising costs. Since 2010, the average Social Security recipient has reportedly lost around 20% of their purchasing power.
Beyond COLAs
While the debate about the fairness and adequacy of COLAs rages on, it's essential to take action now to mitigate the impact of inflation. Consider moving your savings from low-yielding accounts to money market funds offering higher yields. Also, consider reevaluating your dividend stock portfolio and looking for companies that regularly increase their dividends to keep up with inflation.
In the end, it's all about making every detail count when it comes to managing your money in an inflationary environment.
6. Planning for retirement finance
As you approach or enter retirement, it's crucial to consider diverse sources of income beyond Social Security. This might involve saving money, investing in stocks or bonds, or pursuing part-time work or a hobby that generates income.
7. Retirement savings and money management
Effective money management during retirement is essential to ensure your money lasts as long as you need it. This may involve creating a budget, prioritizing expenditures, and continually evaluating and adjusting your financial strategy to account for inflation.