Social Security is crucial for most retirees. It provides about 30% of income for Americans age 66 or older. According to the Social Security Administration (SSA), “Among Social Security beneficiaries age 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income.”
A major benefit of Social Security is that benefits increase in most years, allowing retirees to keep up with inflation – through cost-of-living adjustments (COLAs). The latest COLA was just announced and there was no widespread joy.
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The latest COLA, which will come into effect in 2025, was recently announced and is… 2.5%. That is very close to the average annual increase of 2.6% over the past twenty years. 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 2.5% isn’t much of an increase, you’re not alone. We at the Motley Fool surveyed a number of retirees and found that 54% considered this inadequate. In fact, 31% found it “completely inadequate.”
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 through retirement. Increase it by 2.5% and it rises to just $23,641 – only about $577 more, and an increase of just $48 per month.
Worse, COLAs are likely to disappoint many more times unless they commit to a more appropriate inflation measure: the CPI-E, not the CPI-W. The CPI-W is intended to reflect the spending of workers, while the CPI-E is intended to better reflect the spending of older people. For example, medical care carries more weight – a category where costs have risen higher than average.
If you have earned more than average during your working life, you are of course likely to receive more than average benefits. But they still probably won’t come close to providing everything you need or want. What can you do to prepare for your retirement?
A good strategy is to build multiple income streams for retirement. Be sure to save and invest for your retirement – save aggressively and invest effectively. Figure out how much you’ll need in retirement, and then figure out how you’re going to raise it.
Here are some types of income streams you may have in retirement:
-
Part-time work during the first years of retirement.
-
Income from social security.
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Income from dividend-paying stocks.
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Rent checks from properties you own and rent out.
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Income from one or more annuities.
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Pension income from job(s) that you and/or your spouse had.
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Income from selling shares in your portfolio when needed.
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Income from interest-bearing investments such as bonds, bank accounts, CDs, etc.
-
Legacies.
Thinking outside the box a little can open up even more income opportunities, such as cashing out on life insurance, taking out a reverse mortgage, renting a boarding house, and so on. Simply delaying your retirement by a few years can be a powerful move, allowing you to keep more money in your pocket.
No matter how you go about it, it’s smart to work on self-funding the majority of your retirement. Take the time to develop a good plan and then execute it well. And don’t expect Social Security to provide the bulk of your retirement income, because it probably won’t — and you probably don’t want it to.
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could give your retirement income a boost. For example, one simple trick can save you as much as $22,924 more… every year! Once you learn how to maximize your Social Security benefits, we think you can retire confidently, with the peace of mind we’re all looking for. Click here to find out how you can learn more about these strategies.
Check out the “Social Security Secrets” »
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Social Security’s new cost-of-living adjustment (COLA) is out — and most Americans don’t think it’s enough. What do you think? was originally published by The Motley Fool
