The 2025 Social Security cost-of-living adjustment (COLA) announcement is just days away, bringing crucial news for retirees and Social Security recipients. In light of the high inflation over the past few years, many seniors eagerly await this adjustment to help manage their financial needs. However, based on recent projections, the COLA increase may not significantly impact their overall financial situation.
Projected COLA for 2025: What to Expect
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The Senior Citizens League, a nonpartisan advocacy group for seniors, has projected that the 2025 COLA will be approximately 2.5%. For the average Social Security recipient, this translates to an additional $48 per month, bringing the average monthly benefit to $1,920 as of August 2024. While any increase is helpful, many seniors find that this modest bump might not be sufficient to maintain their current standard of living, especially given ongoing inflation and rising costs.
To bridge the gap, retirees might need to explore alternative sources of income to ensure financial stability throughout their retirement.
Alternative Income Sources for Retirees
For those who find that the Social Security COLA increase doesn’t cover their expenses, there are several alternative sources of income that can help.
1. Personal Savings: Your Financial Safety Net
Personal savings should be the first stop for retirees needing extra funds. It offers the most flexibility since you can withdraw money as necessary to cover various expenses. However, it is a finite resource, so it is important to have a sound withdrawal strategy. This involves withdrawing only what is needed while also considering tax implications.
For example, traditional IRAs and 401(k)s have tax liabilities on withdrawals, while Roth IRAs provide tax-free withdrawals in retirement. Additionally, retirees aged 73 or older must account for required minimum distributions (RMDs).
Investing the remaining balance of your savings in low-risk assets, such as bonds, or keeping some money in easily accessible bank accounts or certificates of deposit (CDs), can ensure that your savings last longer and continue to grow conservatively.
2. Income from Employment: Part-Time or Freelance Work
If you’re still in good health, part-time or freelance work can be a great option to supplement your Social Security income. This job doesn’t need to be in the same field you worked in before retirement. Instead, you could pursue work that aligns with your current interests or passions, allowing you to enjoy a more flexible schedule.
Whether it’s remote work, consulting, or part-time roles, this extra income can help cover gaps in your retirement budget. However, starting a business should be approached with caution, as it often involves up-front costs and risk that may impact your financial security.
3. Rental Income: Generating Revenue from Properties
If you own property, renting it out can be a viable source of income. Long-term rentals can provide a stable income stream, while short-term vacation rentals can offer more flexibility, especially in popular tourist areas. However, managing a rental property requires effort, including maintenance and tenant management. Short-term rentals also demand regular cleaning and upkeep between guests, which could be managed by hiring help if needed.
This option works particularly well if you own the property outright, as it eliminates the need for mortgage payments and maximizes your rental profits.
4. Government Assistance: A Last-Resort Option
If other income sources aren’t enough, government assistance programs may be available to help cover essential needs like food, housing, and healthcare. These programs typically have income-based eligibility requirements and vary by state. While they are intended as a last resort, they can provide crucial support for retirees struggling to make ends meet.
Programs may require regular recertification of income, but they can offer much-needed assistance with day-to-day living expenses, ensuring a basic level of comfort during retirement.
Preparing a Budget: Balancing Income and Expenses
To navigate retirement with confidence, preparing a budget is essential. Once the 2025 Social Security COLA is officially announced, it’s important to calculate how much of your expenses the increase will cover. For many, a combination of Social Security, personal savings, part-time work, rental income, and possibly government assistance may be necessary.
After creating a budget, review it regularly to ensure it still meets your financial needs. If your income doesn’t align with your expenses, consider adjusting your spending or seeking additional sources of income to maintain your financial well-being.
Conclusion: A Strategic Approach to Retirement
While the 2025 Social Security COLA offers some financial relief, many retirees will find it insufficient to cover all their needs. By tapping into personal savings, exploring part-time work, generating rental income, or seeking government assistance, retirees can create a well-rounded financial strategy that allows them to live comfortably. The key is careful planning, sound budgeting, and exploring all available income streams to supplement Social Security benefits.