Projected COLA change by 2025 – Updated Social Security benefit increase announced

As October approaches, retirees are growing increasingly concerned about the Social Security cost-of-living adjustment (COLA) for the upcoming year. While the official COLA rate won’t be announced until October, early predictions based on the July consumer price index (CPI) suggest a slight drop from previous estimates. Specifically, the projected increase has decreased from 2.7% to 2.6%. Though this may seem like a minor change, it underscores the ongoing struggle many seniors face as prices for essential goods and services, such as housing, utilities, and healthcare, continue to rise.

The 2024 COLA increase was set at 3.2%, translating to an average of about $59 more per month for retirees. Unfortunately, this modest increase fails to match the real cost-of-living hikes experienced over the past year. As a result, many retirees find themselves dipping into personal savings to cover expenses and are seeking strategies to safeguard their finances, ensuring they don’t have to return to work during retirement. Here are five compelling reasons why you might consider supplementing your Social Security checks, especially in light of the modest COLA increase.

Healthcare

Medical expenses in the United States are notoriously unpredictable. From fluctuating gas prices to volatile property markets, many aspects of retirement are challenging to predict. However, few are as difficult to plan for as medical costs, which consume a significant portion of seniors’ budgets. In 2018, even with Medicare assistance, half of all retirees spent an average of $4,300 per year on healthcare.

The situation has only become more precarious post-COVID-19, with Fidelity Investments estimating that by 2023, the average retiree will face medical bills exceeding $157,500, beyond what Medicare covers. With such significant out-of-pocket expenses, relying solely on Social Security may not be sufficient.

Long-Term Care

Another critical issue is the potential need for long-term care. Statistics show that 70% of seniors will require long-term care at some point in their lives, whether due to age-related conditions, chronic illnesses, disabilities, or recovery from surgery. However, Medicare does not cover long-term care services, leaving seniors to pay for these expenses out of pocket or through long-term care insurance. Given the unpredictability of when or if long-term care will be necessary, it’s essential to have additional funds beyond Social Security to cover these potentially enormous costs.

Inflation

Social Security benefits are adjusted annually to account for inflation through COLAs. However, these adjustments often lag behind actual inflation rates. For instance, while the 2023 COLA increase of 8.7% was the largest in four decades, inflation for the previous year was even higher at 9.1%. Similarly, the 2024 COLA increase of 3.2% falls short of the 4.1% average inflation rate. This gap means that even with COLA adjustments, the purchasing power of Social Security benefits diminishes over time, making it harder for retirees to keep up with rising costs.

Trust Fund Depletion

Another pressing concern is the potential depletion of the Social Security Trust Fund by 2034. For years, the Social Security Administration has operated with a surplus, placing excess funds into a trust to supplement worker contributions. However, this surplus is projected to run out by 2034, which could lead to reduced payouts or significant changes to the program. While Social Security will not disappear entirely, the potential reduction in benefits highlights the need for retirees to have additional income sources to ensure financial security in the future.

Price Fluctuations

Lastly, price fluctuations in essential goods can significantly impact retirees who rely on fixed incomes. While Social Security benefits remain constant throughout the year, prices for goods and services can fluctuate rapidly, as seen during the economic crises of 2008 and 2022. Even though COLA adjustments may lead to increases in January, retirees must contend with rising costs throughout the year, often outpacing the modest COLA increases. This disparity forces many seniors to stretch their limited incomes further, underscoring the importance of having supplementary income sources.

In conclusion, while Social Security provides a crucial safety net for retirees, the modest COLA increases, rising healthcare costs, inflation, potential depletion of the Trust Fund, and price fluctuations make it clear that relying solely on these benefits may not be enough. By investigating additional income strategies, retirees can better safeguard their financial future and maintain a comfortable standard of living throughout retirement.

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