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

Millions of older adults look forward to the Social Security cost-of-living adjustment (COLA) each year. The COLA is an annual raise that helps benefits keep up with rising costs, and for those who depend heavily on Social Security in retirement, it can go a long way.

In 2025, beneficiaries received a 2.5% increase. With the average retiree receiving around $2,000 per month, according to April 2025 data from the Social Security Administration, that amounts to a bonus of around $50 per month.

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However, there are some serious issues with the COLA, and it hasn't been as dependable in recent years. Here's why I'm not counting on these adjustments by the time I'm ready to take Social Security -- and what I'm doing instead to prepare.

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COLAs are losing their value

The COLA was created to help Social Security combat inflation. Because Social Security recipients receive benefits for life, these monthly checks need to keep up with the ever-increasing cost of living.

Historically, though, they haven't managed to do that very well. According to a 2024 report from nonpartisan advocacy group The Senior Citizens League, the average Social Security benefit has lost 20% of its buying power since 2010 -- despite several years of higher-than-average COLAs.

In fact, between 2020 and 2024, there was only one year in which the COLA outpaced the inflation rate. That was 2023, which saw a record-breaking 8.7% adjustment.

It's not just surging inflation that has made it harder for COLAs to maintain their buying power. It's also how the adjustment is calculated. The Social Security Administration bases the COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a monthly report detailing changes in pricing affecting the average worker.

There is a Consumer Price Index specifically for older adults, called the CPI-E. This index tracks changes in spending patterns among those age 62 and older. However, the Social Security Administration does not use this index to calculate the COLA, which may be at least partly why these adjustments don't always align with costs retirees actually face.

How I'm preparing instead

There's no single right way to prepare for retirement, so what's right for one person may not be the best approach for everyone. However, two tactics I'm using to reduce my dependence on Social Security include investing more aggressively and loading up on dividend investments.

I plan to retire in my mid- to late 60s, which gives me a few more decades to save. In that time, I intend to invest more aggressively in stocks and rely less on bonds and other conservative investments. Stocks tend to be more volatile in the short term, but because I won't need this money for decades, I can afford to take on more short-term risk for the opportunity to earn more over time.

Even a slightly higher average rate of return can add up significantly. For example, say I could invest slightly more conservatively and earn a 6% average annual return going forward, or invest more heavily in stocks and earn an 8% average annual return. If I invest $200 per month, here's roughly how much I could accumulate over time in both cases:

Data source: Author's calculations via investor.gov.

You don't need to take on unnecessary risk to invest more aggressively, and if you're only a few years from retirement, you may want to play it safer right now. But if you can afford to leave your money alone for a decade or so, investing more heavily in stocks could supercharge your long-term earnings.

Earning passive income in retirement

Another option is to invest in dividend stocks for passive income. When you buy dividend stocks, you'll earn a small payment for each share you own. This is called a dividend. The more shares you own, the more you'll earn in passive dividend payments each year.

You can invest in individual dividend stocks, or for a more hands-off approach, you may opt for a dividend ETF. This is a collection of dividend stocks grouped together into a single investment, and by buying just one share of an ETF, you'll own a stake in all of the stocks within that fund.

With enough shares, you could potentially earn thousands of dollars per year (or even per month) in dividend payments. The sooner you start investing, the easier it will be to rack up shares and increase your dividend payments.

Social Security can be a lifeline in retirement, but COLAs may not be as dependable as they once were. By having a backup plan to reduce your dependence on benefits, you can rest easier no matter what happens with Social Security.

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