All Social Security retirees must do this on October 10th.
Regardless of the news coming, there are also a few simple things every retiree should do ASAP.
Are Social Security benefits a significant part of your retirement income? If so, keep your eyes and ears open on Thursday, October 10th. That’s when cost-of-living adjustments are announced for next year’s monthly payments. These increases are intended to keep retirees’ purchasing power in step with inflation.
Of course, sometimes that’s still not enough.
To that end, there’s nothing wrong with starting to think about your bigger financial picture for the coming year. Regardless of whether the impending Social Security payment increase is fair and reasonable, there are several strategic steps investors should take in the meantime.
Retirees, mark your calendars
If you’re a retiree feeling a little short on cash these days, you’re not alone. Although the Social Security Administration increased average payments by 3.2% (about $58 per month) in January of this year, prices have continued to rise. Consumer costs have increased about 2% since the end of 2023, according to the Bureau of Labor Statistics. For older people, who can spend more than younger people on services like health care, the cost is closer to 3%.
If you’re on a tight budget, these nickels and dimes add up.
Fortunately, this inflation is somewhat consistent with expected cost-of-living adjustment (COLA) increases. The Social Security Administration does not provide official projections, but the most recent projections from the Senior Citizens League show that the COLA on Social Security payments in 2025 will be a respectable 2.5%. Even though inflation has cooled slightly in the meantime, the expected growth rate is slightly lower than forecasts made earlier this year.
Image source: Getty Images.
Whatever the final increase is, the Social Security Administration will report it on its website on Thursday, October 10th. There is no doubt that most of the financial media industry will be sharing this news widely shortly thereafter.
Of course, your goal as a retired (or soon-to-be retired) investor is to not have to put too much effort into this particular number either way. You should aim to perform better with your income-generating investments. On that note:
3 things retirees must do
Social Security can never be someone’s entire retirement income. With an average monthly payment of just over $1,900, it can hardly be bought on its own. You will want to supplement this income. This means saving and investing money during your working years and then making the most of it when the time comes.
If you’re looking at these annual COLA numbers, you’re likely already at least halfway retired and may not be adding any meaningful amount to your retirement savings. That doesn’t mean you shouldn’t take a fresh look at your savings. Regardless of what the Social Security Administration announces on Thursday, you may want to consider doing the following:
1. Fix bond interest rates before interest rates fall further.
Bond investors who live off interest income need to build a bond ladder first and foremost. This means adjusting the maturity dates for all your fixed income investments (Treasuries, CDs, corporate bonds, etc.) to stagger them evenly from a few weeks to a few years in the future. This structure hedges against the inherent risks of a bond portfolio while ensuring that net interest payments remain relatively stable over time.
The Fed, on the other hand, has made clear that it expects the federal funds rate to be cut by at least 100 basis points between now and next year, with less aggressive rate cuts expected in the years following. The previously mentioned bond interest rate has already fallen with the 50bp cut last month, but it is highly likely that it will fall again soon.
There is nothing wrong with overloading certain maturity steps of the bond ladder with holdings that have higher yields than you would normally choose to hold. (Don’t be too surprised; basic diversification is still important.)
2. Reexamine all dividend stocks
It’s easy to conclude that high-yield stocks in the stock market are the best options for income-oriented investors. But that isn’t necessarily the case. It’s not uncommon for high-yield dividend stocks to grow their dividends meagerly. Assuming there is no actual dividend growth at all. For example, while kraft heinz The consumer products company, which boasts a healthy future dividend yield of 4.5%, has not increased its quarterly payout of $0.40 per share since the beginning of 2020. Patient shareholders are actually losing purchasing power.
Then there are the less obvious, bad decisions. take coke and pepsico As an example. Coca-Cola tends to be the pair’s preferred investment due to its high profile, but PepsiCo’s future dividend yield of 3.2% is actually better than Coca-Cola’s 2.7% dividend yield. PepsiCo also boasts stronger dividend growth than its larger competitors.
KO Dividend Data from YCharts
Considering that Social Security’s inflation-adjusted cost-of-living adjustments do not make any real net progress in terms of spendable income provided by beneficiaries, investors may be able to achieve this on their own through their own savings. I recommend making the most of it.
3. Compare your expenses to the revenue-generating potential of your portfolio.
Finally, you need to figure out how much money you actually have to spend next year and determine whether your current portfolio can generate that amount (without compromising your ability to do the same in the future). ).
Yes. Owning the right stocks and bonds is part of the equation. But that’s not the only part. Allocation is also an important factor. Can you achieve your long-term goals while still achieving your short-term goals by using fewer stocks and more bonds? Could You Need More Capital Gains From Dividend-Paying Stocks?
There’s still more to talk about. Considering that Social Security’s COLA doesn’t always seem to fully keep pace with retirees’ actual cost of living increases, you may need to rethink and reset your retirement spending plans, too. Are you really watching all the streaming channels on a regular basis? Maybe it’s time to make a call about your car insurance options. Maybe you’ll give up one of your regular restaurant visits. As mentioned above, nickels and dimes can add up over a year.
Whatever you do, get ready for the big news on October 10th.
