Small Social Security Bump Sure to Disappoint Retirees — Again

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Social Security recipients hoping for more cash to spend in 2021 are sure to be disappointed by the Oct. 13 announcement from the Social Security Administration.

One year after receiving a measly increase in their benefits, recipients now face an even smaller 1.3% cost-of-living adjustment, or COLA, for 2021, the federal agency announced. It is the smallest COLA in four years.

As a result, the average retiree payment of $1,523 per month in Social Security benefits will be $1,543 after the COLA takes effect next year, according to federal estimates. That’s an extra $20 each month.

The average retired couple’s collective payment of $2,563 per month would be $2,596. That’s an extra $33 monthly — for two people.

The COLA will take effect in January for more than 64 million recipients of Social Security retirement benefits.

It will take effect on Dec. 31 for more than 8 million recipients of Supplemental Security Income, or 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:

  • 2020 — 1.6%
  • 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, or CPI-W, for the third quarter of the year — 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.

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 30% of their purchasing power from 2000 to 2019. This is due to retirees’ expenses increasing faster than Social Security COLAs, according to the league.

Why your 2021 COLA could 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 Medicare Part B premium amount for 2021 has yet to be announced officially. But the Senior Citizens League’s research shows that this premium is the second-fastest growing cost for retirees, as we detailed in “10 Common Expenses That Have Skyrocketed for Seniors.”

The average monthly Part B premium has risen from $45.50 in 2000 to $144.60 in 2019 — an increase of 218%.

In December, the government will notify Social Security recipients of the exact amount of their 2021 COLA after Part B premiums are deducted. The agency will mail the notice and also post it to the online Message Center that beneficiaries can access through their Social Security account.

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