Social Security COLA ticks down as older adults brace for impact
More than 64 million Social Security beneficiaries will get their lowest cost-of-living adjustment in four years in 2021.
Recipients will receive a 1.3% uptick in their benefits payments in January, the Social Security Administration announced Oct. 13. The COLA for next year is 30 basis points lower than in 2020 and less than half the amount in 2019. In another adjustment for next year, the maximum amount of earnings subject to Social Security payroll taxes will rise to $142,800 from $137,700.
Some experts had predicted the 1.3% COLA last month, with some forecasts expecting the uptick to be even lower. Senior advocates often criticize the COLA formula, saying benefits aren’t keeping up with climbing expenses like Medicare Part B premiums.
Next year’s lower COLA comes as the coronavirus pandemic continues to upend the economy.
Although it’s “modest,” the COLA for 2021 “is needed to help Social Security beneficiaries and their families try to keep up with rising costs,” AARP CEO Jo Ann Jenkins said in a statement.
“The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the one-two punch of the coronavirus's health and economic consequences,” Jenkins said.
Social Security benefits remain the biggest source of retirement income for most Americans and provide 90% or more of the income for one in four older adults, according to AARP. With the coronavirus expected to reduce payroll tax revenue while pushing up disability claims, the program could face automatic cuts to benefits of more than 20% within a decade if Congress doesn’t act.
At the same time, advocates for older adults such as the nonpartisan Senior Citizens League are seeking higher COLAs. According to a report by the League released earlier this year, the annual adjustments have only pushed up benefits by 53% in the past 20 years, compared to the cost of 40 routine expenses going up by 99% in that time span, the report states.
The group favors an “emergency” COLA of 3% for 2021 and automatic boosts each year at that level, or the use of other formulas such as the Consumer Price Index for the Elderly.
There has been “an unprecedented series of extremely low” COLAs for Americans receiving benefits in the past 12 years, according to Mary Johnson, a Social Security policy analyst with the League.
“COLAs have never remained so low, for such an extended period of time, in the history of Social Security,” Johnson said in a statement.
The average COLA over the last decade works out to 1.4%, including three years without any raise — less than half the 3% mean from the previous 10 years, the League’s analysis shows. With automatic 3% raises between 2010 and 2020, beneficiaries would have received an extra $18,000. Congress introduced automatic annual COLAs to the program in 1975.