Maximize Retirement Savings: Why I’m Not Relying Solely on Social Security COLAs

The latest update is in: Social Security will see a cost-of-living adjustment (COLA) of 2.5% for 2025. Starting in January, recipients will notice a slight increase in their benefits, aligning with the inflation rate of 2024.

Yet, for many, especially retirees, this increase hardly feels sufficient. Despite being a straightforward calculation, the rising cost of living seems to be outpacing what many are accustomed to handling. It’s those small, incremental expenses that accumulate and make a noticeable difference.

While retirement isn’t immediately on my horizon, it’s something I’m actively planning for. Here are some strategies I’m considering to help stay ahead of inflation in my retirement years, which you may find useful as well.

Investing in Reliable Dividend-Paying Stocks

Conventional wisdom suggests that as one ages, the portfolio should shift away from the volatility of the stock market towards more secure investments like bonds or high-interest savings accounts. However, with current interest rates slightly improved, I’m reconsidering the balance between bonds and stocks.

My strategy? Lean into companies with a solid track record of increasing dividends. Companies like The Coca-Cola Company (NYSE: KO) and Procter & Gamble (NYSE: PG) don’t just offer decent initial yields of 3% and 2.2%, respectively; they also have a history of dividend growth that beats long-term inflation. Both have consistently upped their dividends for decades and provide steady capital appreciation over time.

What I’m steering clear of are Treasury Inflation-Protected Securities (TIPS). Although they adjust for inflation, they don’t surpass it, which is ultimately what I’m aiming for to gain an edge in my investments.

Reducing Portfolio Volatility

Given my tilt towards dividend stalwarts, I’m planning to reduce my exposure to high-growth stocks as I move closer to retirement. The idea of not holding shares in dynamic tech companies like Nvidia (NASDAQ: NVDA) or Amazon (NASDAQ: AMZN) might seem like leaving money on the table. However, remember that their recent explosive growth is more of an anomaly than a guarantee.

Instead, I’m betting that value stocks, which tend to offer dividends, might soon outperform growth stocks, particularly in a retirement context where selling in a downturn could hurt financial stability.

Creating a Realistic Budget and Cutting Unnecessary Expenses

Managing investments is just part of ensuring a stable financial future. Equally important is knowing where your money goes. That’s why I plan to draft a detailed budget based on actual spending and then eliminate frivolous expenses.

While most of us aren’t indulging in extravagant luxuries, it’s often the smaller, less noticeable costs that gradually drain resources—things like seldom-used time-shares, upscale dining, unnecessary storage units, and redundant insurance policies.

Additionally, missing out on senior discounts, not comparing prices for recurring expenses like cellphone plans, or maintaining high credit card balances can incrementally erode one’s finances. Addressing these areas will require both a strategic and sometimes tough approach to spending.

Optimizing the Timing for IRA to Roth IRA Conversion

While not directly an anti-inflationary measure, strategically converting a traditional IRA to a Roth IRA can be financially advantageous. Traditional IRAs offer tax deductions on contributions and then tax withdrawals as income, whereas Roth IRAs are funded with taxed money but allow tax-free withdrawals.

The key to a Roth conversion is timing: ideally, you’d convert when the market and your account value are lower to minimize the tax impact. This strategic move avoids the heavier taxes that come with higher market values and can prevent pushing you into a higher tax bracket.

It’s generally not advisable to convert immediately following a significant market upswing as this could lead to an inflated tax bill. Instead, consider spreading out conversions to manage tax liabilities more effectively.

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