Nov 4, 2024
Every year, Social Security benefits are eligible for a cost-of-living adjustment (COLA). The purpose of COLAs is to increase benefits in line with inflation so that Social Security recipients don't lose out on buying power.
But in 2025, Social Security benefits will only rise by 2.5%. That's the smallest increase in four years — and amounts to a mere $50 increase per check for more than 72.5 million Americans.
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In fact, for some older Americans, a 2.5% Social Security COLA will mean having to resort to measures such as only shopping at discount stores, skimping on heat and air conditioning to keep utility costs low, and making dietary adjustments to minimize grocery bills.
Now, in reality, a 2.5% Social Security COLA makes sense for 2025 given a recent cooldown in inflation.
The problem, however, is that Social Security COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, an index that doesn’t accurately reflect the costs that tend to be specific to seniors who receive those benefits.
Earlier this year, the Senior Citizens League found that Social Security recipients have lost 20% of their buying power since 2010 — and that accounts for recent COLAs that were fairly generous.
If you’re someone who’s reliant on Social Security to pay the bills, the situation isn’t entirely hopeless. Here are a few ways to stretch your retirement budget.
1. Keep housing costs as low as possible
Housing is many seniors’ largest monthly expense — and it may still be your largest expense even if you’re mortgage-free, as unexpected home repairs and property taxes still factor in.
To help reduce costs, consider downsizing your home, especially if you’re no longer utilizing all the space. A smaller home will also cut down on your energy bills.
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Another option is to move to an area with lower property taxes. You can also check to see if your state has any tax programs for seniors. You may be eligible for a rebate or tax freeze, which could also work wonders for your strict retirement budget.
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2. Be savvy with Medicare
A Fidelity report puts the cost of healthcare in retirement at $165,000 for the average 65-year-old. Lowering your healthcare costs could help your Social Security checks go further.
To that end, sign up for Medicare on time. If you miss your initial enrollment window, you face a lifelong surcharge on your Part B premiums. Your initial signup window for Medicare starts three months before the month you turn 65 and ends three months after your birth month.
Be an active participant in Medicare’s open enrollment period each year. It begins on Oct. 15 and ends on Dec. 7.
During this window, you can choose a new Part D drug plan or Medicare Advantage plan for the coming year, which could help lower your costs.
Additionally, find out what free services are available through your Medicare plan. You may be entitled to certain no-cost health screenings or vaccines, for example.
3. Stay busy creatively
It’s tough to be retired on a limited income. If you don't have additional money for extras, such as travel or hobbies, you risk becoming bored, which could wreak havoc on your mental health.
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It’s important to find creative ways to keep busy when living on a tight income. Join a club to find like-minded people to socialize with, or look into free or low-cost programs at your local library or community center.
Also, consider working part-time or via a side hustle to both occupy your time and generate some more income. Even if it’s only a few hours a week of gig work, the extra cash might buy you some much-needed breathing room.
Remember, you can earn money from a job even if you're receiving benefits from Social Security. There are income thresholds you'd need to be mindful of if you haven't reached your full retirement age.
Working might also help you lower some of your expenses by keeping you out of the house for periods of time.
If you go to a part-time job for 12 hours a week, for example, that’s 12 hours when you don’t have to pump up the heat or air conditioning, or use as much electricity at home.
When you’re essentially living on Social Security alone, even minor savings like that can go a long way.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
