Most seniors are aware that their Social Security benefits include an annual cost-of-living adjustment (COLA) each year. COLAs are designed to assist them keep up with inflation and maintain purchasing power, but they are not intended to enhance benefits.
This is one of the primary reasons that experts advise recipients not to rely only on benefits to meet their retirement obligations. Benefits were never supposed to replace a salary, but rather to cover approximately 40% of expenses. Despite this, many retirees rely on their Social Security checks to make ends meet, and with this year’s 2.5% increase, many are unsure how they will make ends meet in the new year.
The effects of a low COLA on retirees’ Social Security benefits
For individuals who rely on some type of Social Security, the rise helps with bills like Medicare. When we look at the average monthly Social Security income in 2024 and add the 2.5% COLA, we get from $1,927 to $1,976 in 2025. This is only a $49 increase, which, when combined with the previously announced Medicare Part B increase (the standard monthly premium for Part B is $174.70, but it will rise to $185 in 2025), leaves beneficiaries with only $39 extra per month to cover expenses.
This does not imply that every beneficiary will receive an equal rise; those with greater checks will receive more, while those with smaller benefits will receive less. Some seniors are not even eligible for Medicare, therefore this scenario does not apply to them, because Social Security eligibility begins at age 62, and Medicare eligibility does not begin until age 65.
Regardless of the increase and the services you have signed up for the 2.5% increase will be insufficient for most people to cover the increase in expenses they experienced in 2024, when inflation surpassed the COLA in the first half of the year, let alone make up for some of the savings they used to cover the difference in their expected expenses.
How to compensate for a small increase
When you’re a regular worker, it’s easy to say, “Just get a higher salary or a different job that pays better, or just move,” but as you become older, things might become more complicated. The concepts remain the same, and while making some lifestyle changes can be difficult, the improved financial situation may be worth the sacrifice.
Because benefits are based on your record rather than your address, moving to a less costly section of the country is the most effective approach to boost your disposable income with less effort. It can be difficult to leave friends and relatives behind, but the sooner you establish yourself, the better, since you can construct a support network on which to rely if necessary. This has the added benefit of providing you with additional money from the sale of a house in a higher cost-of-living location, as well as passive income from rental.
You can sell and downsize or rent out your home even if you live in the same city. It may be tempting to keep the house, but evaluate how much of your income will be spent on it and whether there are alternative possibilities available that might better suit your lifestyle. Furthermore, a smaller home is easier to clean, heat, and cool.
As a final resort, if you are fit enough, consider returning to work with part-time jobs that offer flexibility. It doesn’t have to be high-pressure work or even in your industry, but it would provide extra income and some contact with other people, which could help you avoid isolation.
