Written By: Marissa Waldron, CFP® 

Many seniors today are heavily dependent on Social Security as their primary source of income, which isn’t an ideal situation. As a result, the annual Social Security cost-of-living adjustments, or COLAs, are crucial in helping recipients maintain their purchasing power as inflation drives up the cost of living. The Social Security Administration is expected to announce the official COLA after September’s data becomes available on October 10. However, whether retirees will be pleased with the adjustment is another question entirely.

Retirees may face disappointing news

Recent COLAs have been fairly generous. For example, benefits rose by 3.2% in 2024 and a significant 8.7% in 2023 due to the rampant inflation experienced in 2022. However, the COLA for 2025 is expected to be much smaller. Initial estimates suggest a 2.63% increase, but that number could drop further based on inflation trends. Unfortunately, even if the COLA ends up slightly higher, it’s unlikely to keep up with inflation in real terms – something COLAs rarely do.

A recent survey by Motley Fool found that 62% of retirees viewed the 2024 COLA of 3.2% as inadequate. Additionally, 44% of those surveyed have considered returning to work because Social Security alone doesn’t cover their living expenses.

Reducing reliance on Social Security COLAs

While current retirees may have to hope for a decent COLA next year, those who are still working have a chance to lessen their dependence on Social Security. The key is to save more money today to build a larger nest egg for retirement. Even if you’re already well into your career, there’s still time to catch up by managing your spending wisely and prioritizing contributions to your retirement accounts, such as a 401(k) or IRA.

For example, if you’re 50 years old with no savings and start contributing $500 a month over the next 20 years, you could accumulate about $275,000 by retirement, assuming an average annual return of 8%. This is higher than the median retirement savings of $200,000 for Americans aged 65 to 74, according to the Federal Reserve.

Another way to become less reliant on Social Security COLAs is to delay claiming your benefits past full retirement age. By waiting until age 70, you can substantially increase your monthly payments. This strategy can help offset the impact of smaller COLAs, providing you with a more secure financial foundation during retirement.

Ultimately, while COLAs offer some inflation protection, building personal savings and delaying benefits can make a big difference in achieving financial security in retirement.

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