I'm Not Counting on Social Security COLAs to Carry Me Through Retirement. Here's What I'm Doing to Combat Inflation Instead.

Social Security typically announces its cost-of-living adjustment (COLA) in October for the upcoming year. Some years bring a generous boost, like 2023's whopping 8.7% increase. But other years? Not so much. In fact, there were years like 2010, 2011, and 2016 when the COLA was essentially nonexistent.

Unfortunately, 2025 is shaping up to be one of those years when the COLA isn't leaving people jumping for joy. According to a recent Motley Fool survey of 2,000 retirees, 54% of respondents believe the 2.5% COLA for 2025 falls short of keeping up with rising costs. On the bright side, a lower COLA often signals that inflation is cooling.

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The reality is, while COLA is helpful, it's far from a foolproof solution for managing inflation over the long term. That's why I'm not counting on COLA -- or Social Security in general -- to carry me through retirement.

Granted, I've still got at least a couple of decades before I'm even eligible to tap into Social Security, and plenty could change between now and then. But I'm planning ahead now to make sure my retirement years aren't fully dependent on numbers that are out of my control.

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Why relying on COLA might not be a safe bet for retirement

For starters, Social Security isn't in the best shape financially. According to the 2024 Trustees' Report, reserves could run dry by 2035, which would force benefit cuts if Congress doesn't intervene.

Now add inflation into the mix. COLA is designed to help Social Security benefits keep pace with inflation. But even with annual COLAs, your costs for healthcare, housing, groceries, and other necessities can outpace the adjustments.

My plan to combat inflation

Here are a few steps I'm taking to ensure I'm not relying on COLA to bail me out when inflation starts to bite:

• Beef up retirement accounts: My goal is to max out my retirement accounts whenever possible and take full advantage of the options available at different points in my career. For example, when I'm working full-time, I make it a priority to contribute as much as I can to my 401(k) or another employer-sponsored plan -- especially if there's an employer match. When I don't have access to a workplace retirement plan, I pivot to alternatives like a SEP IRA to keep the momentum going. And no matter what my work situation looks like, I can always contribute to a Roth or traditional IRA as long as I'm earning income.
• Build a dividend portfolio: Beyond my retirement accounts, I invest in a taxable brokerage account, and dividend-paying assets are my go-to for retirement and sabbaticals. Why? Because they provide an extra stream of income without requiring me to sell my investments. Also, in a taxable brokerage account, I can invest as much as I want without worrying about hitting a ceiling. My strategy is to build a diverse portfolio of dividend-paying assets alongside my growth stocks. I focus on companies with a strong history of consistent payouts, and many of them even offer automatic pay raises by increasing their dividends over time. This is very helpful when it comes to keeping up with inflation.
• Manage my income and expenses: Market returns aren't guaranteed, so I'm always looking for ways to take control now and make life easier later. One of my top priorities is keeping a close eye on my income and expenses. Knowing how much I spend each year helps me estimate the income I'll need in retirement to cover expenses. Plus, I can make sure I'm not overspending because inflation can really throw a wrench in your plans if you're dealing with that. On the income side, I'm always learning and building my skills to stay adaptable and boost my earning potential. Whether it's earning a new certification, exploring cutting-edge technologies, or investing in personal development, I'm focused on adding value wherever I can. This will ensure I have options.

Consider creating your own retirement plan

COLA is helpful for retirees, but I'm not banking on it -- and honestly, you probably shouldn't either. The looming risk of benefit cuts makes COLA even less reliable. Plus, it's worth noting that Social Security was never designed to be your primary source of income.

The good news? You can build your own financial cushion. By taking control of your skills, savings, and investments now, you can build a solid financial cushion -- no matter what Social Security and COLA looks like in the decades ahead.

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