October 15, 2024
I was recently featured in Financial Planning magazine discussing the 2025 Social Security COLA announcement. Below are my key insights from that article. For the complete piece published on October 10, 2024, please see the full article here.
As the founder and managing partner of RGA Investment Advisors, I was recently interviewed about the Social Security Administration’s announcement of a 2.5% cost-of-living adjustment (COLA) for 2025—the lowest increase in four years.
In the article, I noted that “while the lowest adjustment in years signals moderating inflation, it still poses challenges for retirees who rely heavily on Social Security as a primary income source.”
I specifically pointed out that “retirees may feel squeezed by increasing healthcare costs, housing expenses, and other essential needs that often rise faster than the overall inflation rate.”
Strategies for Current Retirees
My advice to retirees facing this situation was direct: “For retirees, the key to coping with smaller COLA increases is a disciplined approach to spending and budgeting.
Retirees should prioritize necessary expenses and consider tightening discretionary spending.”
I also emphasized reviewing investments: “It’s essential to review investments and savings to ensure their portfolios are aligned with their long-term financial needs.”
Preparing for Retirement in an Uncertain Environment
For those not yet retired, I stressed in the article that “smaller COLAs emphasize the importance of building a diversified retirement plan that doesn’t rely solely on Social Security.”
I often advise clients to anticipate that Social Security will cover only a portion of their income needs and encourage them to focus on building robust savings in tax-advantaged retirement accounts, like IRAs and 401(k)s, to create multiple income streams.
On the topic of long-term Social Security viability, I was quoted saying: “Social Security is unlikely to disappear, but benefit reductions or reforms may come into play in the coming decades.”
I advised viewing “Social Security as a foundational element of retirement income, but not the sole one.”
Perspectives from Other Financial Advisors
Several other advisors offered complementary perspectives in the article.
I selected a couple who raised particularly important points about managing retirement expectations and creating sustainable withdrawal strategies in light of modest COLA increases.
Daren Blonski of Sonoma Wealth Advisors questioned whether essentials like gas and milk have truly increased by only 2%, calling this a “‘diet’ COLA.”
Jeremy Keil of Keil Financial Partners expressed hope that:
“The 2025 COLA of 2.5% is met with inflation of 2.5% and retirees feel even and not overburdened.”
Carla Adams of Ametrine Wealth shared that she sets her financial planning software to assume the Social Security COLA is 0.5% less than inflation “to assure her clients have enough set aside for retirement.”
She also strongly advocated for maximizing benefits, stating:
“I almost always recommend people wait until age 70 before taking Social Security, if they can wait that long, so they can maximize their benefit.”
Conclusion
This COLA adjustment represents a significant decrease from previous years—dropping from 3.2% in 2024 and falling dramatically from the 8.7% increase in 2023.
For the average retiree, this translates to benefits rising by approximately $48 per month in 2025.
For the complete article with all perspectives and details, please visit the Financial Planning website here.