Social Security Benefits Set to Rise: How to Adjust Your Financial Plans Now

KEY TAKEAWAYS

• The Social Security Administration announced a 2.5% cost-of-living increase for enrollees Thursday.
• Financial planners said the period before the increases, implemented in January, is a good time for the 68 million people receiving Social Security benefits to adjust their budgets.
• Experts recommend that people with additional retirement funds set aside some of their Social Security checks in a high-yield savings account to create an emergency fund.
• For beneficiaries whose sole income is Social Security, expenses can be more than two times the average benefits check. Advisers and advocates suggest those beneficiaries ensure they are signed up for all benefits they qualify for to provide extra support.

The Social Security Administration announced adjusted benefits for enrollees on Thursday, and experts suggest beneficiaries update their financial plans before the change is implemented.

Each year, the administration adjusts Social Security benefits based on inflation in order to maintain enrollees' purchasing power. This year, the cost of living adjustment (COLA) will increase Social Security checks by 2.5%, and beneficiaries will receive $50 more on average each month starting in January.

While that may not sound like much, it can be significant for the 68 million Social Security beneficiaries who rely on the federal program for retirement benefits.

Financial advisers and planners said enrollees can predict their income in 2025 based on the Social Security Administration's recent announcement, and now is the time for them to budget accordingly.

"Don't plan for the worst or expect the best. Plan for something slightly above what you've experienced for this current year," said Ryan Ramsey, associate director of health coverage and benefits for the National Council on Aging.

How Should Retirees Who Have Additional Retirement Funds Think About the Adjustment?

For retirees with additional retirement funds, such as a 401(k) or pension, certified financial planner Laura LaTourette recommends setting some of their social security benefits aside as an emergency fund. She also recommends low-risk options such as a high-yield savings account or CD.

“We have not had the interest given in those lower-risk products since the recession in 2008,” LaTourette said. “We're seeing a lot of folks not have to take a lot of risk to be able to get a little bit of interest on their money and savings.”

Certified financial planner Cody Lachner said this is also the time to consider any changes the benefits adjustments will have to your tax bracket. For example, getting more benefits may affect your income tax.

“The formula which determines how much of your Social Security benefits that are taxable does not increase with inflation, so you may find that the higher benefits post-COLA increase your tax bill,” Lachner said.

What About Beneficiaries Who Rely Solely on Social Security?

Advocates say it can be difficult for retirees to live off social security benefits alone.

According to the Social Security Administration, the estimated average monthly benefit check as of January was $1,907. However, the most recent data from the Bureau of Labor Statistics showed that those 65 and older had expenditures equal to $5,007 a month at the end of 2023.

There's assistance for many major expenses Social Security beneficiaries often incur. For example, there are low-income assistance programs that work with Medicare and can help reduce the price of prescription drugs. The annual enrollment period for Medicare is approaching and Ramsey recommends projecting your needs for the next year so you can get the most cost-effective plan.

Enrollees should check if they receive all the benefits for which they are eligible, experts said. For example, many people aged 60 and above are eligible for the Supplemental Nutrition Assistance Program (SNAP), yet over half of them do not participate, according to the National Council on Aging.

“Go out there and see what you may qualify for, and if you do qualify, take advantage of it,”  Ramsey said. “You’re certainly not taking a benefit away from somebody. If you qualify for something, you’re owed that."

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