How much will Social Security benefits rise in the new year? That’s a big question on a lot of people’s minds as we get closed to nailing down an official 2025 cost-of-living adjustment (COLA).

The purpose of Social Security COLAs is to help ensure that beneficiaries don’t lose buying power as inflation drives the cost of living upward. At the start of 2024, Social Security benefits rose by 3.2%. But based on what we know so far, it’s looking like 2025’s Social Security COLA will be a bit stingier.

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Initial estimates are calling for a 2.5% COLA in 2025. And that number has the potential to shift downward if September’s inflation reading (which isn’t available as of this writing) comes in cooler than expected.

If you’re worried that a smaller Social Security COLA in the new year will hurt your finances, that’s understandable. But it also means that it may be time for a serious shift in how you approach your retirement finances.

You don’t want to be reliant on Social Security COLAs

Social Security COLAs have long failed to help beneficiaries actually keep up with inflation. So being in a position where you’re dependent on a generous one is not a good thing at all. And if that’s the situation you’ve landed in, it may be time to make some big changes.

These won’t necessarily be easy changes, though. And that may be tough to wrap your head around. But if you’re living paycheck to paycheck in retirement, and your only income source is Social Security, then pushing yourself to make difficult changes could alleviate a chunk of your financials stress in the future.

The first thing to do is assess your spending and see where there’s room to cut corners. And the answer may not be obvious. But if you dig deeper, you may realize that you can, in fact, downsize to a smaller home — one that’s less expensive to maintain and pay property taxes on. And if you rent, you may find that you’re able to shed some square footage to be able to write your landlord a smaller check each month.

You can also think about where you live. Social Security will pay you the same amount of money regardless of your city or state of residence. And while some states do tax Social Security, there are often exemptions for lower earners — a category you’ll likely fall into if those benefits are your only source of income. If you live in an area with a high or even moderate cost of living, moving somewhere with a lower cost of living could help you stretch your benefits further.

Finally, be honest about your ability to work in some capacity. Some seniors have health issues that prevent them from committing to a job. If that’s not you, though, and it’s that you simply don’t want to work, ask yourself this: Would you rather put in a few hours a week at a job, or resort to having to skimp on meals and skip medication doses due to a lack of funds?

Remember, too, that working today doesn’t have to mean accepting shifts at a local store or doing admin work at an office. The gig economy is loaded with opportunities to generate income at your own pace. You could sell baked goods at local farmers markets, offer up occasional child care services, or even drive paying passengers around town in your car.

A harmful cycle worth breaking

On October 10, the Social Security Administration will announce an official COLA for 2025. But if that number makes a huge difference in your finances, that’s a problem. And so regardless of what next year’s COLA amounts to, it’s wise to consider the changes above if you’re tired of worrying about money day in, day out.

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