The Social Security Administration announced Oct. 10 that the 2020 cost-of-living adjustment (COLA) will be just 1.6%, continuing what The Senior Citizens League (TSCL) calls a “worrisome trend” in which COLAs have averaged just 1.4% from 2000 to 2019.
The 1.6% COLA will begin with benefits payable to more than 63 million Social Security beneficiaries in Jan. 2020. For an average retiree who gets a monthly check of $1,460, that adds up to an additional $23.40 a month, according to TSCL.
This year, recipients received a 2.8% COLA, or an average $40.90 more each month than in 2018, the most since 2012. But because inflation has moderated over the past year, the COLA increase isn’t as large for 2020.
The Social Security Administration also announced the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $137,700.
The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will increase to $18,240. (SSA deducts $1 from benefits for each $2 earned over $18,240.)
The earnings limit for people turning 66 in 2020 will increase to $48,600. (SSA deducts $1 from benefits for each $3 earned over $48,600 until the month the worker turns age 66.)
There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
Purchasing power eroding
The purpose of the COLA is to ensure that the purchasing power of Social Security and SSI benefits are not eroded by inflation, but that’s not the case, according to The Senior Citizens League.
“Adequate COLAs are critical to retirement security,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League. “Social Security is one of the only types of retirement income that provides this essential protection against rising costs. When a retiree’s costs rise faster than their COLA, the buying power of Social Security benefits erodes, leaving people with a benefit that doesn’t go as far as it did when they first retired.”
According to research by Johnson, who accurately predicted the 1.6% 2020 COLA back in mid-September, Social Security benefits have lost 33% of buying power since 2000.
The COLA calculation is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor and is by law the official measure used to calculate COLAs.
A new analysis from The Senior Citizens League (TSCL) indicates that Social Security checks in 2019 are as much as 18% lower due to the impact of extremely low COLAs over the past 10 years. From 2000 to 2010, COLAs routinely averaged 3% annually. People who have been receiving Social Security benefits since 2009 have only seen a COLA higher than 2.8% one time (in 2012).
In 2010, 2011, and 2016 there was no COLA payable at all and, in 2017, the COLA was just 0.03%. Likewise, in 2018, the COLA was 2%, but TSCL notes rising Part B premiums consumed the entire increase for roughly half of all beneficiaries.
Johnson’s analysis found that, over a 10-year period, average Social Security benefits of $1,075 per month in 2009 lost a total of $15,258 in financial growth from 2010 to 2019 when compared to the previous decade when COLAs averaged 3%. By the end of that 10-year period, average benefits were $223 per month lower than they would have been had inflation averaged the more typical 3%.
“People who have been retired for 10 years or longer have absorbed the full financial blow of low COLAs,” Johnson says.
Medicare benefit rate coming in December
Final 2020 Medicare benefits amounts for 2020 will be announced and communicated to beneficiaries in December and available at www.medicare.gov, the SSA said on Oct. 12.
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 2020 are announced.
Estimates from Medicare trustees expect the 2020 figure will be $144.30, up from $135.50 in 2019. Medicare Part B premiums are automatically deducted from Social Security benefit checks.
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.
