All Social Security retirees should do this on October 10th

Are Social Security benefits an important part of your retirement income? Then you should keep your eyes and ears open on Thursday, October 10th. Then the cost of living adjustment for the coming year's monthly payments will be announced. These increases are intended to maintain retirees' purchasing power by keeping pace with inflation.

Of course, sometimes they still aren't quite enough.

To this end, it would not be wrong to think about the overall financial outlook for the coming year. Whether or not the upcoming increase in Social Security payments is fair and reasonable, there are some strategic moves investors may want to consider in the meantime.

Retirees, mark your calendars

If you're a retiree feeling a little strapped for cash these days, you're not alone. Although the Social Security Administration increased its average payout by 3.2% in January of this year (about $58 per month), prices have continued to rise in the meantime. The Bureau of Labor Statistics reports that consumer costs have increased by about 2% since the end of 2023. For older people, who may spend more than younger people on services such as health care, the cost is around 3%.

If you're on a budget, those nickels and dimes add up.

Fortunately, this inflation is more or less in line with the expected increase in the cost of living (or COLA). While the Social Security Administration does not provide official projections, the Senior Citizens League's most recent forecast suggests that the COLA for Social Security payments in 2025 will be a respectable 2.5%. This expected increase is slightly below forecasts at the beginning of the year, although inflation has now cooled somewhat.

Whatever the final increase will be, the Social Security Administration will announce it on its website on Thursday, October 10th. There is little doubt that most of the financial media industry will spread the news widely shortly thereafter.

Of course, as a retired (or soon-to-be-retired) investor, your goal is not to sweat that particular number too much. You should try to achieve even more with your own income-generating investments. In this sense:

3 things every retiree should definitely do

Social Security should never cover a person's entire retirement income. With an average monthly payment of just over $1,900, it's almost uninhabitable on its own. You will probably want (and need) to supplement this income. This means saving and investing money during your working years and making the most of it when the time comes.

If you're paying attention to these annual COLA numbers, you're probably already at least semi-retired and probably aren't adding a significant amount of money to your retirement nest egg. However, that doesn't mean you shouldn't take a new look at the money you've saved. Regardless of what the Social Security Administration announces Thursday, here's what you should think about.

1. Fix interest rates on bonds before interest rates fall further

Bond investors who live off their interest income should first of all build what is known as a bond ladder. All this means is that you set the maturity dates for all of your fixed income investments (Treasury bonds, CDs, corporate bonds, etc.) so that they are staggered evenly from the next few weeks to the next few years. Such a structure hedges the unique risks of your bond portfolio while ensuring that your net interest payments remain relatively stable over time.

On the other hand, the Federal Reserve has clearly stated that it plans to cut interest rates by at least 100 basis points by next year, with less aggressive rate cuts on the horizon the following year. Although interest rates on the above-mentioned fixed income instruments have already fallen thanks to last month's 50 basis point cut, they are likely to fall again soon.

It wouldn't be wrong to load certain maturities on your bond ladder with higher-yielding holdings than you would normally hold. (Don't freak out—basic diversification is still important.)

2. Double-check all your dividend stocks

It is easy to conclude that the stocks with higher returns in the stock market are the best choice for income-oriented investors. However, that is not necessarily the case. It's not uncommon for higher dividend yield stocks to see paltry payout growth – assuming they offer any actual dividend growth at all. For example during Kraft Heinz Although the consumer staples company boasts a solid forward-looking dividend yield of 4.5%, it has not increased its quarterly payment of $0.40 per share since the start of 2020. Patient shareholders actually lose purchasing power.

Then there are the less obvious bad decisions. Take Coca-Cola And PepsiCo as examples. While Coca-Cola tends to be the preferred investment of the two companies due to its larger size, PepsiCo's forward-looking dividend yield of 3.2% is actually better than Coca-Cola's dividend yield of 2.7%. PepsiCo also has stronger dividend growth than its larger competitor.

KO dividend data from YCharts

Given that Social Security's cost-of-living inflation adjustment results in no recipient ever making any actual net progress on the spendable income they provide, investors can only do this on their own—with their own savings. It's worth making the most of it.

3. Compare your expenses to your portfolio's earning potential

Last but not least, you want to figure out how much money you'll actually spend next year, and then determine whether your current portfolio is even capable of generating that amount (without compromising your ability to do so in the future). ).

Yes, owning the right stocks and bonds is part of the equation. But it's not the only part. Allocation is also a factor. Can you achieve your short-term goals and still achieve your long-term goals with less stocks and more bonds? Is it possible that you need more capital appreciation from your dividend stocks?

The story has more to offer. Because Social Security COLAs don't always seem to fully keep pace with retirees' actual cost of living increases, you may also need to rethink and readjust your retirement savings plans. Do you really watch all of these streaming channels regularly? Maybe it's time to learn about your car insurance options. Maybe you can skip one of your regular restaurant visits. As mentioned above, the nickels and dimes can add up over the course of a year.

Whatever you have to do, be ready for the big news on October 10th.