Social Security recipients hoping for more cash to spend in 2020 are sure to be disappointed by today’s announcement from the Social Security Administration.
As a result, the average retiree payment of $1,479 per month in Social Security benefits will be $1,503 per month after the COLA takes effect next year, according to federal estimates. That’s an extra $24 each month.
The average retired couple’s collective payment of $2,491 per month would be $2,531. That’s an extra $40 monthly — for two people.
The COLA will take effect in January for more than 63 million people who receive Social Security benefits.
It will take effect on Dec. 31 for more than 8 million people who receive Supplemental Security Income (SSI) benefits — income supplements for people who are elderly, blind or disabled and who have little to no income.
COLAs for the past several years were:
- 2019 — 2.8%
- 2018 — 2%
- 2017 — 0.3%
- 2016 — 0% (no adjustment)
- 2015 — 1.7%
- 2014 — 1.5%
- 2013 — 1.7%
- 2012 — 3.6%
What is a COLA?
Cost-of-living adjustments are meant to counteract the effect of inflation.
As the Social Security Administration describes its annual COLA:
“The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.”
By law, Social Security COLAs are tied to the federal government’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter — specifically, the average change in the index over the previous four quarters.
When the CPI-W shows no average change over those four quarters, or if it decreases, there is no Social Security COLA for the next year. That is why beneficiaries did not see a COLA for 2016.
As the Bureau of Labor Statistics defines it, a consumer price index is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
Critics argue that it’s unfair to tie Social Security retirement benefits to the CPI-W because it’s based on costs that workers commonly incur — which can differ from costs that retirees face.
In fact, an analysis by the Senior Citizens League earlier this year found that Social Security retirement benefits lost 34% of their purchasing power from 2000 to 2018. This is due to retirees’ expenses increasing faster than Social Security COLAs, according to the league.
Why your 2020 COLA may be even less than you think
When Social Security recipients also have Medicare health insurance, their Medicare Part B premium is automatically deducted from their Social Security payments.
So, if a small COLA coincides with a big jump in the Part B premium, the premium increase essentially could cancel out part or all of the COLA.
The Part B premium amount for 2020 has yet to be announced officially. But the Senior Citizens League projects that the 2020 premium will be “considerably more” than the current premium.
The league explains:
“In 2019, most beneficiaries paid $1.50 per month more than in 2018. In 2020, however, the Medicare Trustees have forecast that Part B premiums will increase from $135.50 to $144.30 per month — $8.80 per month more.”
In December, the government will notify Social Security recipients of the exact amount of their 2020 COLA after Part B premiums are deducted. The Social Security Administration will mail the notice and also post it to the Message Center at the “my Social Security” website.
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