Another twenty bucks a month is what the average retired worker receiving Social Security benefits will receive in 2021 after the Social Security Administration announced today that the official Cost of Living Adjustment (COLA) for next year will be an increase of 1.3%.
The 1.3% increase will bump the average monthly benefit for all retired workers (more than 64 million Social Security beneficiaries) just $20, from $1,523 in 2020 to $1,543, starting in January. That equates to about an extra $240 per year. The average retired couple’s collective payment will jump from $2,563 per month to $2,596—a mere $33 monthly raise—for two people.
This is a lower increase than 2020’s 1.6% increase and marks the fifth time since 2010 that there will be an extremely low, or even no, annual inflation adjustment.
While it is bigger than those in some recent years (in 2010, 2011 and 2016, the COLA was 0% and in 2017, it was 0.3%), it is much smaller than the 2.8% increase in 2019. The average COLA from 2010 to now has been 1.4%, much less than the 3% average annual increases between 1999 and 2009.
Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL) who once again accurately predicted the 1.3% increase a month ago, says next year’s increase is one of the lowest ever paid.
“People who have been receiving benefits for 12 years or longer have experienced an unprecedented series of extremely low cost-of-living adjustments,” Johnson said Tuesday.
She adds that those inflation adjustments do not account for rapidly rising Medicare Part B premiums that are increasing several times faster than the COLA. The situation is causing those with the lower Social Security benefits to see little growth in their net Social Security income after deduction of the Part B premium.
The new analysis by Johnson compared the growth of retiree benefits from 2009—through 2020 to learn how much more in income retirees would receive if COLAs had grown by a more typical rate of 3%. The analysis found that an “average” retiree benefit of $1,075 per month in 2009 has grown to $1,249 in 2020 but, if COLAs had averaged 3%, that benefit would be $247 per month higher today (19.8% higher), and those individuals would have received $18,227.40 more in Social Security income over the 2010 to 2020 period.
During that period COLAs have averaged just 1.4%. In 2010, 2011, and 2016 there was no COLA payable at all and, in 2017, the COLA was just 0.03 percent. “But COLAs have never remained so low, for such an extended period of time, in the history of Social Security,” says Johnson, who has studied the COLA for more than 25 years. Over the 20-year period covering 1990 to 2009, COLAs routinely averaged 3% annually, and were even higher before that period.
The Senior Citizens League is working to get legislation introduced that would provide an emergency COLA of 3% in 2021.
Taxable max increases to $142,800
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics, which itself is the subject of debate.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $142,800 from $137,700 in 2021.
The Social Security Administration also released a fact sheet on Oct. 13, showing the effect of the various automatic adjustments.
Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. Most people who receive Social Security payments will be able to view their COLA notice online through their personal my Social Security account, which may be accessed or created at www.socialsecurity.gov/myaccount.
Information about Medicare changes for 2021, when announced, will be available at www.medicare.gov. For Social Security beneficiaries receiving Medicare, Social Security will not be able to compute their new benefit amount until after the Medicare premium amounts for 2021 are announced. Final 2021 benefit amounts will be communicated to beneficiaries in December through the mailed COLA notice and my Social Security’s Message Center.
Additional Social Security facts
- More than 85% of people 65 and older receive Social Security payments. Among elderly Social Security beneficiaries, 50% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security.
- The average monthly Social Security income only got a 1.6% boost for 2020 due to relatively low inflation. This cost of living adjustment raised the average monthly Social Security payment for retired workers to $1,503 in 2020 from $1,479 in 2019.
- Despite the promise of higher payments by waiting to start claiming benefits, the most popular age to start benefits is 62. A full 42% of men and 48% of women start benefits at 62.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
