Social Security: 5 Ways Boomers Should Prepare for Cuts
Written by
Ashley Donohoe
Edited by
Ashleigh Ray
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
After receiving a historic 8.7% Social Security cost-of-living adjustment (COLA) in 2023, the 2024 COLA was 3.2% because of falling inflation — and retired baby boomers should prepare for even less in 2025.
The SSA recently announced the COLA for next year will be just 2.5%, which is sure to put a squeeze on your budget if you’re a retiree dependent upon your benefits.
Additionally, some proposals targeting the program’s funding shortfall have called for various Social Security cuts. This includes changing COLA calculations, which could reduce future increases.
Unless you prepare for these changes, it can be easy to overestimate your future Social Security income and wind up with insufficient alternative resources. Here are five ways you can help reduce the effects of a lower COLA on your retirement budget.
Cut Your Living Expenses
Lowering your living expenses will help you prepare for smaller COLAs and stretch your Social Security benefits further. Start looking at your budget to see which expenses have the most impact so you can make appropriate cuts.
You might downsize your home or do without a second car to significantly reduce your monthly expenses. Smaller changes could include buying used items, shopping more frugally at the grocery store, watching your utility usage, and looking for cheaper insurance plans. Senior discounts and assistance programs could also help.
Tackle Your Debts
The prospect of smaller COLAs means you should assess any debt payments that take up your retirement income.
This is especially true as inflation raises the cost of daily necessities, and higher interest rates create a burden when you borrow.
Vanguard, an investment management firm, recommended focusing on high-interest debts such as credit cards, student loans and personal loans. You can create a payoff plan that fits your financial situation.
While tackling debt will temporarily tighten your budget, you’ll minimize your total interest charges and create a larger cushion for other expenses later.
Maintain an Emergency Fund
Unexpected expenses can strike at any time, but they become even harder to manage when you’re relying on limited Social Security benefits. This makes having easy-to-access cash reserves crucial to avoid hardship and potentially new debt.
Ahead of smaller COLAs, make sure you have at least three to six times your basic monthly expenses saved — ideally, in a high-yield savings account. If possible, consider saving a full year’s worth of basic monthly expenses for further peace of mind.
Diversify With Investments
Investments are a great way to have passive income that can make up for a smaller COLA.
To supplement what’s already in your 401(k) or individual retirement account, consider some new bonds, dividend-paying stocks, annuities, or a rental property. Each option works differently and features varying levels of risk and return, so speak with a financial advisor for guidance.
For example, government bonds have relatively low returns but a high level of safety, while dividend-paying stocks often have potentially higher returns and more risk.
Coming in several varieties, annuities offer ongoing payments with low risk but can be expensive. A rental property, on the other hand, comes with responsibilities and various risks.
Consider Still Working
If you already receive Social Security benefits, taking a part-time job can help reduce the impact of a smaller COLA.
Along with local opportunities, consider remote positions and freelance work for more flexibility. Just be mindful of how the new income could reduce your Social Security benefit amount or make some of it taxable.
If, on the other hand, you’re still considering applying for Social Security, you might delay that decision and continue working. For example, you could wait until the full retirement age of 66 to 67 rather than apply at age 62. While this doesn’t affect COLAs, it will let you avoid having your benefits reduced because of early retirement.
More From GOBankingRates
