Social Security is vital for most retirees. It delivers about 30% of income to those Americans aged 66 or older. Indeed, per the Social Security Administration (SSA): “Among Social Security beneficiaries aged 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income.”
One great thing about Social Security is that benefits are increased in most years, helping retirees keep up with inflation — via cost of living adjustments (COLAs). The latest COLA was just announced, and there wasn’t widespread rejoicing.
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The latest COLA, to take effect in 2025, was recently announced, and it’s… 2.5%. That’s very close to the 2.6% average annual hike over the past two decades. The table below lists some recent Social Security COLAs:
|
Year |
COLA |
|---|---|
|
2024 |
3.2% |
|
2023 |
8.7% |
|
2022 |
5.9% |
|
2021 |
1.3% |
|
2020 |
1.6% |
|
2019 |
2.8% |
|
2018 |
2% |
|
2017 |
0.3% |
|
2016 |
0% |
|
2015 |
1.7% |
Source: Social Security Administration.
If you think that 2.5% isn’t much of an increase, you’re not alone. We at the Motley Fool surveyed a bunch of retirees and found that 54% viewed it as insufficient. In fact, fully 31% found it “completely insufficient.”
I understand the sentiment — because as of September, the average monthly retirement benefit was $1,922 — or only about $23,000 per year. That’s far from enough to support most of us in retirement. Increase it by 2.5% and it rises to only $23,641 — only about $577 more, and an increase of just $48 per month.
Even worse, COLAs are likely to disappoint many more times, unless they start getting tied to a more appropriate measure of inflation — the CPI-E, not the CPI-W. The CPI-W is meant to reflect the expenses of workers, while the CPI-E is meant to better reflect the spending of older folks. Thus, for example, it more heavily weights medical care — a category that has experienced higher-than-average cost increases.
Of course, if you’ve earned more than average over your working life, you’ll likely collect bigger-than-average benefit checks. But they still are not likely to come close to providing all you need or want. So, what can you do to prepare for retirement?
One good strategy is to build multiple income streams for your retirement. Definitely be saving and investing for retirement — saving aggressively and investing effectively. Figure out how much you’ll need in retirement, and then figure out how you’ll amass it.
