Goodbye to the 2025 COLA – Early Projections for New Social Security Check Increase

The Social Security cost-of-living adjustment (COLA) is a key benefit enhancement for retirees, especially those relying heavily on Social Security for everyday expenses. Adjusted annually to reflect inflation, the COLA aims to help seniors maintain their purchasing power. However, with inflation slowing, beneficiaries will only see a 2.5% increase in 2025—a smaller rise than in recent years. While this boost is modest, it’s essential for seniors to manage expectations and prepare for potentially even smaller increases in 2026 if inflation continues to ease.

Social Security COLA Outlook for 2026

While predicting the exact COLA for 2026 is challenging, the Federal Reserve’s cautious approach to managing inflation indicates it may continue to slow through 2025. The Fed’s recent interest rate cuts signal confidence that inflation will remain low, benefiting consumers overall but potentially resulting in a lower COLA in 2026. While smaller adjustments might seem disadvantageous, a stable or declining inflation rate is generally positive for consumers as it keeps prices more predictable.

However, since Social Security COLAs have historically lagged behind real-time inflation, many seniors have found that these adjustments don’t fully cover rising expenses. This disconnect can impact retirees’ budgets, making it wise to consider diversifying income sources and relying less on COLA for future financial stability.

Strategies for Retirees Facing Smaller Social Security Increases

For retirees, depending solely on Social Security may lead to financial challenges, especially if COLA adjustments are modest. Here are some practical strategies to help stretch retirement income:

Increase Income with Part-Time Work or Gig Jobs

If retirement savings are limited, finding part-time or gig work can supplement income. Many gig jobs offer flexibility, allowing retirees to earn without significant time commitments. Part-time work can provide both financial support and an opportunity to stay engaged and active, making it a beneficial option for some seniors.

Build Your Nest Egg Now

For those yet to retire, this is a wake-up call to bolster retirement savings. By setting aside even a modest monthly amount, individuals can build a financial cushion that reduces reliance on Social Security. For example, saving just $100 monthly over 30 years, with an average 8% return, could grow to around $136,000—enough to supplement Social Security if COLA increases are insufficient.

Financial Moves to Avoid During Retirement

Managing finances carefully in retirement is essential to maintaining long-term stability. Here are three common financial pitfalls that retirees should avoid:

Avoid Over-Reliance on Home Equity for Living Expenses

Many retirees consider using home equity as a source of retirement income, often by downsizing or selling their home. While this can free up capital, it’s crucial to weigh long-term consequences. For instance, selling a home for $400,000 and moving into an apartment could provide cash, but high rent costs might drain savings faster than anticipated, leaving retirees without a valuable asset or inheritance.

Don’t Depend Entirely on Post-Retirement Employment

Many seniors continue working in retirement, but unforeseen health issues can disrupt these plans. The Federal Reserve reports that over half of American households have a retirement account, yet reliance on post-retirement work may not be sustainable. Health risks, such as the 25% of seniors experiencing falls annually, often lead to medical costs that may deplete retirement funds. Maintaining a financial safety net helps mitigate these risks.

Avoid Overspending on Non-Essential Expenses

While it’s natural to want to enjoy retirement, excessive spending on travel or luxury items can strain finances. The Employee Benefit Research Institute (EBRI) found that many retirees encounter unexpected expenses, often related to leisure. Setting a sustainable budget and avoiding major purchases can help retirees avoid financial stress, especially if returning to work or finding flexible employment becomes challenging.

Ways to Strengthen Financial Security for the Future

Even if Social Security benefits are modest, disciplined financial planning can help retirees maintain stability. Here are some tips to consider:

• Build an Emergency Fund: Having savings specifically for emergencies can prevent the need to withdraw from investments or retirement accounts during market downturns.
• Consider Inflation-Protected Investments: Treasury Inflation-Protected Securities (TIPS) and other inflation-hedged assets can add stability to retirement portfolios.
• Downsize Strategically: If selling a home, consider moving to a lower-cost area rather than renting in an expensive city, allowing more of the equity to be preserved.

As inflation ebbs, retirees who prepare now by managing expenses and creating additional income streams will be in a stronger position to weather smaller COLA increases without compromising their quality of life.