The Social Security COLA 2025 will be announced this month. Here’s what that means for retirees.

Are you currently receiving Social Security retirement benefits? If so, you’ll want to mark October 10th on your calendar. That’s when you’ll hear how much your monthly payments will be for 2025. Hopefully, it’ll be enough of an improvement to offset the price increase on… well, pretty much everything that is so far this year.

But how much of a raise are we owed, and for that matter, what does it mean — in practical terms — for current program beneficiaries? Continue reading.

Cola is coming!

What the hell is a COLA? It’s an acronym for “cost of living adjustment.” Recognizing that the cost of living rises over time, the Social Security Administration regularly raises payments to beneficiaries of all its programs. The most watched COLA update, of course, is the one that affects 67.7 million people, including about 53.2 million people age 65 and older.

The Social Security Administration gives no official indication of what the COLA will be for a given year. But we have a rough idea of ​​what’s to come. Data from the Bureau of Labor Statistics show that total consumer costs rose 2.5 percent since the last time the entitlement program announced a COLA in October 2023. Stripping ever-volatile food and fuel prices out of the calculation, consumer prices are higher by 3.2% for the same 12-month stretch. The Senior League’s latest estimate is for a 2.5% increase.

In other words, it would be surprising if the increase was not at least in that stage.

As for what this means in more relative terms, since the average monthly Social Security payment this year stands at $1,907, a 2.63 percent increase would put the average monthly benefit in 2025 somewhere around $1,957. That’s $50 more per month. Keep in mind, however, that people receiving higher payments will see larger nominal increases, while retirees collecting smaller-than-average checks right now will see a smaller net improvement. Everyone sees the same COLA, but it’s a percentage-based improvement over their current monthly benefit.

You can overcome a poor cost of living adjustment

But that won’t be enough no matter how much money you get? If you feel this way, you are not alone.

Although Social Security’s COLA is based on official inflation data from the U.S. Bureau of Labor Statistics, it comes after the underlying price increases are in place and have already taken their financial toll. You may catch up on your bills until you see any benefit from it.

It’s also arguable that the annual COLA doesn’t reflect reality — especially for retirees, who are more likely to spend more on health care than the average worker. That points to declining numbers in the Senior League anyway. It suggests that over the past 15 years, the average US retiree collecting Social Security benefits actually lost $370.23 in monthly purchasing power that they theoretically shouldn’t have lost.

While there’s not much you can do about Social Security’s upcoming cost-of-living adjustment, there are a few things retirees can do to offset an inadequate COLA. Here are the three that might help the most.

1. Review your dividend stocks

If you own stocks, you probably own at least some names that pay dividends. But are dividend stocks the best dividend stocks for your portfolio? It might not be, unless overall dividend growth is firmly outpacing inflation. For example, while Verizonthe prospective dividend yield of 6% is impressive, since 2014 the telecom giant’s payouts have only grown at an average annual rate of about 2%. Inverse, McDonald’s the current yield of 2.33% is just that, but its quarterly dividend has more than doubled over the past 10 years.

MCD Dividend Data by YCharts.

The point is, if you rely on dividend stocks to provide spendable income, you may lose purchasing power over time without even realizing it.

2. Rethink your fixed income holdings

Since you’ll want to take a fresh look at your dividend stocks, it wouldn’t hurt to review bonds, CDs, and other fixed income instruments…especially now, with interest rates likely to continue to fall from many – top of the year.

Next you will always want to diversify your bond portfolio, just like you do with stocks. It might not hurt to lock in more holdings at higher rates than you would normally choose before the Federal Reserve goes through with its plans to lower rates over the next couple of years.

3. Not all “cash” is the same

Given the likelihood that you have at least some of your savings currently held in cash, consider moving some of that money into a higher-yielding money market fund. These funds pay just under 5% at the moment, and those yields are likely to fall in line with global interest rates. Considering you’re earning virtually nothing on the cash in your checking or savings account, though, that’s huge.

There is a catch…sort of. While money in most checking accounts is always available immediately, and savings accounts can often be accessed the next day, cashing out most money market holdings soon after purchase could incur a small early redemption fee. You will need to check with your bank or broker the details of the money market you are considering. Fortunately, the minimum estimated holding period is usually only a few weeks, and if you really need that money in the meantime, maybe reach him

Image source: Getty Images.

There’s a fourth, less desirable option… though it might not be quite as miserable as you might fear. I mean, get back to work.

Returning to work probably wasn’t what you had in mind for this time in your life. However, living with the stress of not having enough spendable income probably wasn’t what you planned either. There is a balance to be found.

Don’t worry. Working after you start collecting Social Security retirement benefits will not affect your payments until and unless your earnings reach a certain threshold. For perspective, recipients can earn up to $22,320 this year before the Social Security Administration starts reducing the size of your monthly checks. If your only goal is to keep up with the rising cost of living, you won’t even need to do that much.

Keep your eyes and ears open on the 10th. That’s when the big COLA question will be answered.