Social Security benefits are essential for millions of retired Americans who depend on these monthly payments to cover their living expenses and keep up with inflation. On average, retired workers receive about $1,900 per month, but this amount can vary based on factors like their full retirement age, work history, and the Social Security taxes they’ve paid over their careers.
Each year, these benefits receive a boost thanks to the cost of living adjustment (COLA), which is announced in October. Let’s explore how retired workers can increase their monthly payments and manage their finances better.
How Does the Cost of Living Adjustment (COLA) Impact Social Security Benefits?
Since 1975, Social Security benefits have increased based on the cost of living, as measured by the Consumer Price Index. These increases are known as cost-of-living adjustments (COLAs). Typically, new beneficiaries joining Social Security receive higher benefits than those leaving, causing average benefits to rise. Annual COLAs, however, cause sudden increases that disrupt this gradual rise.
According to the latest projections from The Senior Citizens League (TSCL), the COLA for 2025 is expected to be around 2.6%. This is one of the lowest COLAs compared to recent years and could impact retirees’ finances.
Despite this, retirees should consider the current economic climate. High borrowing costs mean that investment returns are more favorable now, providing opportunities for seniors to grow their money.
3 Strategies for Retirees to Increase Their Income and Savings
1. Open a Certificate of Deposit (CD)
A Certificate of Deposit (CD) is a great way to grow your savings in any economy, especially now. Interest rates on CDs are currently as high as 5.5%, particularly with online banks. You might even find CDs offering an Annual Percentage Yield (APY) of 7%.
By depositing a portion of your funds into a CD, you can earn a substantial amount of interest. However, make sure the amount you deposit is comfortable for you, as early withdrawal penalties could result in the loss of some or all of the interest earned.
2. Open a High-Yield Savings Account
High-yield savings accounts offer competitive interest rates and provide more flexibility than CDs. You can access and use the interest you earn immediately. Since these rates can fluctuate, it’s wise to open an account now while rates are favorable, currently near 6%.
This method can increase your profit margin without sacrificing your ability to access your funds. Keep in mind that if interest rates decline or stabilize in the future, the return on your high-yield savings account might decrease.
3. Create a Retirement Budget
Many retirees don’t spend enough time reviewing their annual and monthly budgets, which is crucial for understanding their financial situation and finding ways to cut costs. Start by analyzing your spending in different categories like housing, groceries, healthcare, entertainment, and other monthly expenses. Knowing your expenses is essential for building a financial budget, especially in retirement.
Healthcare is a significant expense in retirement. Ensure you’re not overspending on out-of-pocket costs for in-home care or Medicare. A Medicare supplementary insurance plan can help with these expenses. Long-term care insurance can also save money over time.
Take the time to calculate and see where adjustments can be made, as you might be surprised at how much you can save.
Maximizing your Social Security benefits and managing your retirement income effectively requires careful planning and smart financial decisions. By understanding how COLA impacts your benefits and utilizing strategies like opening a CD, a high-yield savings account, and creating a retirement budget,
you can ensure a more secure and comfortable retirement. It’s important to stay informed and proactive about your financial health to make the most of your retirement years.
1. What is the average Social Security benefit for retired workers?
On average, retired workers receive about $1,900 per month. This amount can vary based on several factors, including full retirement age, work history, and Social Security taxes paid.
2. What is the cost of living adjustment (COLA)?
The COLA is an annual increase in Social Security benefits to keep pace with inflation. It’s based on the Consumer Price Index and helps ensure that benefits maintain their purchasing power over time.
3. How can I earn more from my Social Security benefits?
You can earn more from your Social Security benefits by delaying your retirement, working longer, and ensuring you’ve paid into Social Security for the maximum number of years.
4. Are there penalties for early withdrawal from a Certificate of Deposit (CD)?
Yes, there are penalties for early withdrawal from a CD. The penalties can result in the loss of some or all of the interest earned, so it’s essential to deposit an amount you won’t need to access before the term ends.
5. Why is creating a retirement budget important?
Creating a retirement budget is important because it helps you understand your financial situation, identify cost-cutting opportunities, and ensure you can cover all necessary expenses, especially in healthcare.