If your Social Security payments are a big part of your retirement income, you should keep an eye on what is going to happen. The cost-of-living increase (COLA) for the coming year will be made public on Thursday, October 10.
This change is meant to help retirees keep their purchasing power in line with inflation. However, it does not always work, which shows how important it is to plan ahead for your general finances next year.
No matter how big the COLA is, retirees may need to think about some methods to help them stay financially stable.
You are not the only one who has been having trouble with money lately. In January of this year, the Social Security Administration (SSA) raised monthly payments by 3.2%, which is about $58 more per month.
However, inflation has continued to have an effect on buyers. The Bureau of Labor Statistics says that prices have gone up about 2% since the end of 2023. Prices have gone up even more for older people, whose medical bills tend to be higher.
For people who are already on a tight budget, these extra costs can add up quickly.
On the bright side, the rate of inflation is pretty close to what was expected when COLA went up.
The SSA does not officially predict the COLA, but the Senior Citizens League thinks that Social Security payouts will go up by 2.5% in 2025. Due to recent drops in inflation, this prediction is a little lower than earlier ones.
As a retiree or someone who is about to retire, you should not depend too much on the size of this change. As a general rule, your investments should make sure you do not have to rely on Social Security alone.
This is because Social Security was not meant to be the only source of income in retirement. The average monthly payment is just over $1,900, so most people need extra money to live properly.
This means you need to save money and invest it while you are working and then get the most out of those investments when you leave. How?
1. Secure Interest Rates on Bonds Before Further Rate Cuts to supplement your Social Security payments
Setting up a “bond ladder” is important for seniors who depend on bond interest income. As part of this strategy, the due dates of fixed-income investments like U.S.
Treasuries, CDs, and company bonds are spread out over a number of years. When made correctly, a bond ladder lowers risk and helps keep interest income stable over time.
The Federal Reserve says it will lower the federal funds rate by at least 100 basis points until the end of the year. After that, the rate could be lowered by less.
Interest rates on bonds and other fixed-income products have already gone down because of recent rate cuts, including a 50-basis-point cut.
It looks like rates will go down even more. You might want to put more money into higher-yield bonds in your bond ladder right now to take advantage of the low rates before they go down even more. Still, make sure to keep diversifying to lower your risks.
2. Review Your Dividend Stocks
Higher-yield stocks may look good to retirees who want to make money, but they are not always the best choice. When dividend rates are high, payouts often do not grow much, if at all.
Kraft Heinz, for example, has a forward dividend yield of 4.5%, but the business has not raised its $0.40-a-share quarterly dividend since the beginning of 2020. For buyers, this means that their money may lose value over time.
3. Assess Your Spending Versus Your Investment Income
Finally, figure out how much you plan to spend next year and see if your present investments can cover it without using up all of your savings. It is important to have the right mix of stocks and bonds, but how they are invested is even more important.
Check again to see if changing the mix of stocks and bonds in your portfolio will help you meet your short- and long-term financial goals.
Also, you should look over your retirement spending again. Most of the time, COLA increases do not fully keep up with rising costs of living, so you may need to change how much you spend.
Check to see if all of your present costs are necessary. Are you making the most of the video services you pay for? Is it possible to get car insurance for less money?
Can you eat out less often? Small savings add up over time, and making smart changes to how you spend your money can have a big impact on your general financial health.
Also see:-Estimates of Social Security COLA Benefits for Retirees in 2025
