While you can access many Social Security benefits at any age, Social Security income is the benefit Americans rely on most. This year alone, nearly 68 million Americans will receive the monthly benefit, the majority of them retirees. When you no longer have a steady paycheck, this additional money makes a big difference—when it comes to the 65-and-over crowd, 42% of women and 37% of men get at least half their income from it. But even with Social Security checks, retired adults have been feeling the pinch after years of inflation.
According to data collected by The Senior List, the average retiree spends $2,984 per month, about $1,300 more than the average Social Security income, and 43% of retirees are more worried about their finances now than before they retired. “In addition, more than half of retirees feel like they’re living month to month, and more than 25% frequently stress about affording basic necessities,” says Amie Clark, co-founder and editor-in-chief of The Senior List.
So it’s welcome news that the Social Security Administration just announced a cost-of-living increase. But just how much more money will you see on your Social Security check, and will it make a dent in your retirement costs? We talked to Social Security, retirement and money experts to find out.
Get Reader’s Digest’s Read Up newsletter for more money, work, humor, travel, tech and fun facts all week long.
What is the Social Security cost-of-living increase, exactly?
The cost-of-living increase is just what it sounds like—adjustments to Social Security payments based on increased costs of basic expenses—and it’s a relatively new thing.
“The cost-of-living adjustment, or COLA, was enacted by Congress as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975,” explains Kevin Walton, a registered Social Security analyst certified by the National Association of Social Security Analysts. “Before that, benefits were increased only when Congress enacted special legislation.”
Since then, COLA has become something all beneficiaries can count on each year. “The Social Security cost-of-living adjustment is an annual increase to every recipient’s benefits based on the change in the consumer price index over the past year,” says certified financial planner Stephen Kates, the principal financial analyst for the site RetireGuide.
How much is the latest increase?
The just-announced increase for 2025 will be 2.5%, and the amount in each check will vary. “Based on the average monthly Social Security benefit in 2024 ($1,862), this increase will amount to approximately $47 per month, or $559 per year,” Kates says.
That’s lower than the increases we’ve seen in recent years because the inflation rate has fallen substantially from its peak in 2022. “The past few years had high increases but only because the cost of goods was rising quickly,” Kates says. “The 2.5% increase is close to the average over a multi-decade period and is far from the lowest. There were multiple years during the 2010s when there was no increase at all.”
How can you calculate how big your check will be?
Before you do the calculation, don’t get too excited. You’re not going to see a ton of extra money in those checks.
Here’s the trick to figuring out your 2025 Social Security income: “Take the gross monthly or annual amount you will receive and multiply it by 1.025,” Kates says. “This will give you your new gross check amount, and if you have yet to take Social Security, you can determine your eligible benefits by creating an account on SSA.gov.”
When will people receive this extra money?
The Social Security Administration will start sending checks with the new amounts in January 2025.
How can you stretch your retirement dollars?
Stretching your retirement dollars takes some savvy, from living in an affordable place to following the best money-saving habits. But even the most prepared retirees can be caught off guard. According to The Senior List, nearly 30% of retirees are not confident they’ll be able to maintain their current lifestyle throughout retirement. “The most unexpected financial challenges for retirees were inflation and rising living costs, followed closely by medical and health-care expenses, and home-repair and maintenance costs,” Clark says.
Luckily, our experts have some strategies to help stretch your retirement dollars.
Manage cash flow
Managing cash flow is important for everyone, but for retired folks, limiting spending to only what is coming in from Social Security, investments and part-time jobs is critical. “Maintain a budget for your spending, and plan ahead for future spending,” Kates advises.
Then focus on saving. After all, it’s much less stressful to save for a rainy day than spend sleepless nights worrying about debt from impulse purchases. When you have a little extra, save it if you can. “In years when investments are performing well, emergency funds can be boosted,” he says. “These will be important for years when your investments perform poorly and will offer you assets to draw from with little risk or tax consequences.”
Be a savvy consumer
There’s a rush that comes with shopping and getting new things, but in some cases, you can refresh what you have, which is also good for the environment. “In day-to-day spending, capitalize on opportunities to save on the everyday things you plan to do anyway,” Kates suggests. “Credit card rewards, rebates, home-maintenance tax rebates and more are all available to retirees who seek them out.”
Look at your fixed expenses
It’s a good idea to look at your fixed expenses, make sure they’re really “fixed” and see if you can cut costs without too much sacrifice. “This can include reevaluating your auto and home insurance or eliminating the number of times you eat out each week,” says Chuck Czajka, a certified Social Security claiming strategist and the founder of Macro Money Concepts in Stuart, Florida.
Be careful with the credit cards
Although debit cards come with their own risks, you want to be mindful of how much you’re charging. “When it comes to credit cards, keep usage to a minimum,” Czajka advises. “If you do make credit card charges, ensure you pay them off in full at the end of each month.”
Get a good investment advisor or accountant
You may think you can manage your finances on your own, but it can be helpful to have an investment advisor or accountant help you with the big picture, and you might even find that saving money can be a fun challenge. “There may be opportunities to plan withdrawals or asset sales in certain years to minimize future taxes or take advantage of certain allowable tax credits or deductions,” Kates says. A financial advisor or accountant can help you with that.
Delay retirement
Nobody really wants to significantly delay retirement, but holding off on getting your Social Security benefits is a wise move. “For those who have not yet retired or claimed Social Security benefits, waiting until full retirement age or later can significantly increase retirement income,” Kates says. “If benefits are delayed, payments will increase by roughly 8% per year until age 70.”
Always read the fine print
Whether you’re dealing with long service agreements or cellphone contracts and bills, it’s critical to read the fine print. If you feel like you’re reading gobbledygook, you’re not alone. But ask a trusted relative or friend to help you. When all else fails, hire a lawyer.
About the experts
|
Why trust us
At Reader’s Digest, we’re committed to producing high-quality content by writers with expertise and experience in their field in consultation with relevant, qualified experts. We rely on reputable primary sources, including government and professional organizations and academic institutions as well as our writers’ personal experiences where appropriate. We verify all facts and data, back them with credible sourcing and revisit them over time to ensure they remain accurate and up to date. For this piece, Jaime Stathis tapped her experience as a longtime journalist who covers money, work and scams for Reader’s Digest to make sure all information is accurate and offers the best possible advice to readers. Read more about our team, our contributors and our editorial policies.
Sources:
- Social Security Administration: “Fact Sheet”
- Amie Clark, co-founder and editor-in-chief of TheSeniorList.com; email interview, Oct. 14, 2024
- Kevin Walton, NARSSA-certified registered Social Security analyst; email interview, Oct. 16, 2024
- Stephen Kates, principal financial analyst for RetireGuide; email interview, Oct. 16, 2024
- Chuck Czajka, certified Social Security claiming strategist and the founder of Macro Money Concepts; email interview, Oct. 15, 2024