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

Most U.S. households don’t save enough for retirement, and the typical household has just $200,000 saved by age 65. Using the popular 4% rule, that’s only enough for retirees to withdraw about $8,000 in their first year.

As a result, over 57 million retired Americans depend on Social Security. The average monthly benefit in May was approximately $1,950. It’s a financial lifeline, crucial for people to eat and keep a roof over their heads.

Each year, a cost-of-living adjustment (COLA) is applied to Social Security benefits to help account for rising living expenses, and this year’s COLA was 2.5%. Many are seeing their bills increase more quickly than that. Additionally, Social Security may face financial strain that could weigh on COLA increases over the coming decades.

That’s why I’m not counting on Social Security to get me through retirement. Instead, here’s how I’m financially preparing to combat inflation.

Budgeting my income

According to the U.S. Census Bureau, the median annual income among U.S. households is approximately $78,538. There’s no question that seemingly everything is more expensive than it once was, but most Americans earn enough money to contribute to their retirement savings. A budget can help tremendously.

Consumer spending is the engine that drives America’s economy. Spending is an integral part of U.S. culture, and technology has made it increasingly easy to do so. Look, I’m guilty of my fair share of seemingly harmless monthly subscriptions that seem to add up to hundreds of dollars every month.

Since I began budgeting my money, I’ve been able to track exactly where each dollar goes and evaluate whether it’s genuinely something I need. Money is personal to everyone, and you shouldn’t rob yourself of some happiness and the occasional guilty splurge.

That said, you want to have some money left over after paying your monthly bills. The point of budgeting is to avoid systematically spending every cent you earn, or worse, racking up debt.

Managing my debt

Budgeting my income has helped increase my household cash flow, which, in turn, has enabled me to begin tackling debts. Debt is a regular part of life and can be a helpful tool. Most people who buy a home during their lifetime will borrow the money to do so. Fortunately, mortgages typically carry lower interest rates than most other loans. Plus, you can build equity in the home as you pay down the principal or its value appreciates.

However, debt with high interest rates, such as credit cards, can be catastrophic for your finances. It’s difficult to avoid debt entirely, but people can still be mindful of their borrowing. Do you need the most expensive vehicle or house you can afford? Any little trade-off when making big financial decisions involving debt can make life easier for you.

It’s bad enough that people are retiring with less money than they need, and having lots of debt only makes it worse. I’m working on paying down debts with high interest rates to open up more of my income for my nest egg.

Investing my retirement savings

The key to a comfortable retirement is to grow your savings, and investing is likely the best way to accomplish this for most people. Social Security and COLAs are fantastic complements to a healthy nest egg, but they shouldn’t be your core retirement plan. There are various ways to save for retirement, including 401(k) plans offered through your employer and individual retirement accounts, such as traditional and Roth IRAs.

It shouldn’t be that difficult to outpace inflation in the stock market. The S&P 500, the most widely recognized U.S. stock market index, has averaged an annualized return of about 10% over the past five decades vs. an inflation rate of about 3.6%.

The caveat is that the stock market is more volatile. It goes down some years and, every so often, it drops quite a lot. It’s essential to consider the risks associated with investing your retirement savings. If you need a guiding hand, a professional financial advisor can walk you through the steps of building a retirement planning strategy that suits you.