Each year, the Social Security Administration (SSA) adjusts benefits based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). What’s commonly known as a cost of living adjustment, or COLA, these increases help seniors maintain their quality of life while in retirement. And with the strong recent inflationary pressures we’ve seen, these increases are becoming much more necessary in a world that just gets more expensive every year.

The recent inflation surge we’ve seen has led to some rather remarkable (and historically high) adjustments in recent years. In 2022, the COLA for the following year (2023) was a whopping 8.7%. Last year, social security payments were increased 3.2%, as inflation came down. And for this upcoming COLA expected in a couple week’s time, experts project the COLA for 2025 will come in at around 2.5% (with some estimates as high as 3%), based on third quarter data which will be complete with the September CPI report due out on October 10.

The thing is, no matter what this year’s increase comes in at, retirees everywhere may be looking to stretch every last dollar in a bid to make the household budget line up. That’s understandable, and that’s why I’ve compiled three tips many finance experts suggest could be optimal ways to become less reliant on these increases over time and create a sustainable and enjoyable retirement.

Let’s dive in.

Key Points About This Article:

• In less than two weeks, we’ll get a pretty good idea of how much social security payments are expected to increase in the coming year.
• But regardless of how much one’s monthly social security check increases, managing expenses and doing these three things can improve one’s quality of life in retirement.
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Diversify Income Sources

Diversifying income sources is a crucial strategy for everyone from young investors to retirees. Anyone seeking financial stability beyond annual wage increases from one’s job (or cost of living increases from the government) can benefit from having a diverse source of passive income over time. 

Investing is obviously the best way for those looking to live their best life as their future self to get on this path. So, for readers who aren’t quite at retirement age yet, stashing as much capital away as possible for the rainy days that will inevitably come is always good advice.

Unfortunately, for many retirees, this isn’t quite possible. However, pursuing part-time work during retirement (below a certain threshold – there’s such a thing as making too much money) can be very beneficial. Doing something in a field one enjoys can not only provide that extra bit of wiggle room in retirement, but also keep the social juices flowing. For my parents, I know such activities have been a net positive, but everyone’s situation is different.

Other options are to switch one’s investments into dividend-paying stocks or a heavier position in fixed income securities such as bonds. Talking with one’s financial advisor can allow for a strategy shift to be able to maintain one’s portfolio without selling key assets in early years. If you’re able to live off the dividends, great. Other options such as annuities can be set up to provide a more stable form of income over the long-term, but again, that’s a discussion with financial professionals based on each investor’s unique experience.

Optimize Retirement Timing

Optimizing retirement timing is a vital strategy for enhancing financial security in retirement, particularly regarding Social Security benefits. One of the most effective ways to maximize these benefits is by delaying a claim until age 70. 

For each year a retiree decides to postpone claiming Social Security beyond full retirement age, monthly benefits can increase by approximately 7% to 8% annually. This increase not only boosts your initial benefit but also enhances future Cost of Living Adjustments (COLA), as these are calculated based on your higher starting amount. 

For example, if you wait until age 70, you could receive significantly more than if you claimed benefits at age 62, which could lead to a substantial financial advantage over time. Additionally, delaying Social Security can serve as a hedge against inflation and market volatility, ensuring that your income keeps pace with rising living costs. 

However, this decision should be carefully considered in light of personal health, financial needs, and life expectancy. If you anticipate living well into your 80s or beyond, the benefits of waiting can be considerable.

Control Expenses and Budget Wisely

Controlling expenses and budgeting wisely is essential for retirees aiming to maintain financial stability without relying heavily on annual Cost of Living Adjustments (COLA). A proactive approach to managing expenses can significantly extend the life of retirement savings. 

One effective strategy is downsizing housing; moving to a smaller, more affordable home or relocating to an area with a lower cost of living can lead to substantial savings on mortgage payments, property taxes, and maintenance costs. 

Additionally, retirees should focus on limiting discretionary spending by prioritizing essential expenses and finding ways to cut back on non-essentials. Simple practices like meal planning, using public transportation, and taking advantage of senior discounts can help stretch a fixed income further. 

Furthermore, managing healthcare costs through preventive measures can be crucial. Investing in regular check-ups and a healthy lifestyle can reduce the likelihood of expensive medical bills later on. Creating a detailed budget that tracks income and expenses allows retirees to identify areas for improvement and make informed financial decisions.

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