Social Security provides essential income for most of us in retirement, but it’s probably not enough, even though the cost of living increases almost every year.
Social Security provides a significant source of income for U.S. retirees (approximately 68 million at last count), providing approximately 30% of income for those age 66 and older. And from the Social Security Administration (SSA): “Among Social Security recipients age 65 and older, 12% of men and 15% of women rely on Social Security for more than 90% of their income.”
Here, I’ll explain Social Security benefits and their cost-of-living adjustments (COLAs) and why I won’t rely on this program for my primary support going forward.
Image source: Getty Images.
Social Security and the latest COLA
Here’s what you need to know:
As of August, the average Social Security retirement benefit was just $1,920 a month, or about $23,000 a year. Of course, if your income is above average, your benefits will also be above average, but probably not as much as you would like. Setting up your Social Security account on the SSA website allows you to accurately estimate your future benefits. The recently announced COLA for 2025 is just 2.5%, down slightly from the 3.2% increase in 2024 and significantly down from the 8.7% increase in 2022 as inflation recedes.
Why I don’t rely on social security much
There are several ways to increase your Social Security benefits, including delaying your claim date. (For most people, the best age to claim benefits is 70.)
But even these enhanced payments may still not be enough. For me, they are definitely not enough. If my monthly benefit is $3,000, that’s only $36,000 a year. Even if it’s closer to $3,600, it’s only about $42,000 a year. You will need more.
Therefore, while I welcome all the Social Security benefits I can receive, I would very much appreciate an increase in Social Security benefits most years through COLA, which helps their purchasing power keep up with inflation. However, I do not intend to receive Social Security benefits. My main source of income after retirement is security. The benefits are not that great.
Social Security faces challenges
You may have seen the headline that Social Security funding will soon be depleted. That’s not entirely true, but the program faces challenges. For decades, Social Security received more money each year from workers’ payroll taxes than it paid out to beneficiaries. This created a surplus.
However, the ratio of workers to beneficiaries is shrinking, and the surplus is shrinking. According to the 2024 Annual Report of the Board of Directors of the Federal Aging, Survivors and Disability Insurance Trust Fund, “reserves will be depleted in 2035.”
If Congress does nothing now to strengthen the program, the Trustees estimate that benefit cuts will be inevitable in 2035. In that case, beneficiaries would receive only about 83% of the amount they should have received. So while retirees won’t suddenly lose their Social Security benefits, their benefits will be reduced.
Fortunately, there are many ways to solve this problem if Congress takes action. I’m hoping for that, and I believe it’s very possible because so many people rely so heavily on Social Security. But I’m not counting on that.
I am planning to have multiple sources of income after retirement.
So what am I doing? I have been saving and investing for retirement for decades and aim to have multiple sources of income in the future. among them:
Dividend-paying stocks: I am changing the composition of my stock portfolio to target more dividend recipients and collect more dividend income each year. I’m trying to build this stream to an appropriate size. This strategy may work for you too. For example, if you invest $300,000 in stocks with an average dividend yield of 4%, your annual income will be $12,000, or about $1,000 per month. Even better, as a company increases its dividend, that income stream should increase over time, and you don’t have to sell stock to get that income. Growth Stocks: My growth stock portfolio is another source of income because I can always chip away at a portion each year. Retirement Accounts: Over the years, I have used a variety of tax-advantaged retirement accounts, including IRAs and 401(k)s. Some of them have required minimum distributions (RMDs) that you have to take each year, but each of my accounts will provide me with more resources in retirement.
You may also use some of your assets to purchase a fixed annuity. This is essentially an insurance contract that distributes payments periodically over the life of the policyholder. If the going gets tough, you might consider a reverse mortgage.
I’m retiring — are you?
As you may have noticed by now, I have been making a lot of plans for my retirement. That’s what you should do too. We all need to figure out how much money we’ll need in retirement and how to get it. Don’t leave things to chance, and realize that Social Security may not provide you with the full retirement benefits you desire.
