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Retirement Planning > Social Security

Social Security COLA Estimated at 1.3% for 2021

By Janet Levaux

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Social Security card and money (Image: Shutterstock)

Social Security recipients should see a 1.3% cost-of-living adjustment in 2021, smaller than the 2020 COLA, according to the Senior Citizens League. 

This comes several months after the lobbying group expected falling oil prices to zero out the COLA for 2021. But in July, it updated its estimate to a 1.1% increase as prices rose for gas and some other items.

The official COLA is set to be announced by the Social Security Administration on Oct. 13. It was 1.6% in 2020.

“Our forecast is based on Consumer Price Index data through August, and there is still one more month of … data to come in before we get the official announcement in October,” said Mary Johnson, Social Security policy analyst for the Senior Citizens League, in a statement. 

The inflation rate from May to August points to the COLA rising as much as 1.4%. However, price changes from June through August in combination with a downward trend in gas prices “seem to indicate it will probably be 1.3%,” Johnson explained. 

The advocacy group says there’s a 5% chance the 2021 COLA will top 1.3% and a 15% likelihood it will be lower.  

If the COLA turns out to be 1.3%, it would be the fifth time since 2010 that seniors will see a very low, or even no, annual inflation adjustment. The COLA was zero in 2010, 2011 and 2016, and it was 0.3% in 2017.

“This is more evidence that our system to adjust benefits for inflation is broken,” according to Johnson.

Over the past decade, annual COLAs have averaged 1.4% — less than half the 3% COLA average from 1999 to 2009.

COLA Calculations

Currently, the adjustment is tied to the percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which reflects prices paid by working adults under age 62 and gives greater weight to items like gas and electronics.

At the same time, this measure gives less weight to housing and medical expenses, which are the biggest areas of spending for older consumers, the Senior Citizens League says. It also includes Medicare premiums, which have been rising in price in recent years. 

The U.S. Government Accountability Office, which reviewed the measurements this summer, concluded that the U.S. Bureau of Labor Statistics “faces accuracy, timeliness and relevancy challenges developing consumer price indexes (CPI) for subpopulations of blue-collar workers and older Americans.”

— Related on ThinkAdvisor:

Janet Levaux

@Think_JanetL

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