Social Security Increase for 2021 Will be the Lowest in Years

Social Security card and Medicare enrollment form

If you think your monthly Social Security benefit is protected against inflation, it is time for a reality check. The basis for determining the amount of the increase is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

People on social security don’t spend their income like those earners. Seniors spend most of their income on groceries, housing and healthcare. The increases in those expenses are typically undercounted in the CPI-W. Urban wage earners spend their income on other pursuits like education, apparel and entertainment.

Applying the CPI-W to Social Security cost of living adjustments since 2020 has meant that the buying power of Social Security payments has resulted in smaller Social Security raises. This has woefully reduced Social Security buying power.

The Senior Citizens League has done the math. In 2020 a retiree with the average Social Security benefit of $816 a month today would need $1,626 in 2002 to buy the same amount of goods and services as they were able to do 20 years ago. Factoring in the small COLA raises since then, that same senior now has just $1,246 per month. The senior is now, because of COLA shortfalls, $4,560 per year poorer.

In addition to how the CPI-W doesn’t keep up with Social Security, Medicare premiums are constantly on the rise, and they take an increasing bite out of the checks of most Social Security recipients. Seniors typically pay both income tax and an over $140 a month Medicare premium, which has risen steadily over the years and further eroded the retiree’s Social Security income.

Worse news is that COVID-19 has resulted in a deflationary effect on the cost of living. A recovering economy with rising prices during July and August, however, could result in a Social Security COLA raise of about 1.2% to 1.4% next year. Even so, that raise will be the lowest since January 2017 and below the 2% in 2018 and 2.8% in 2019. That would amount to about $20 extra for someone drawing the average benefit of $1,517.

But don’t go spending that $20, because another Medicare increases is on the horizon. The current premium of $144.50 is slated to rise to $153.30 in 2021, which could be even more if COVID-19 stresses the healthcare system further.

So, as the Social Security Administration gives with one hand and takes away with another, look for a paltry net increase of between $9.50 and about $12.50 each month. While better than nothing, that raise won’t keep up with rising living costs.

It would take an act of Congress to separate Social Security from the CPI-W, which is unlikely. The trust fund is already scheduled to tank by 2035. Increasing COLAs would only speed up the process. Politicians don’t want any part of accelerating the cutting benefits to voters.

So, the bottom line is that seniors cannot count on inadequate COLAs to halt the erosion of Social Security benefits. Instead, we need to take control, save, and invest to ensure a comfortable retirement. Social Security might provide about 40% of retirement expenses, but in trends continue, it could be less.

Most Popular

These content links are provided by Content.ad. Both Content.ad and the web site upon which the links are displayed may receive compensation when readers click on these links. Some of the content you are redirected to may be sponsored content. View our privacy policy here.

To learn how you can use Content.ad to drive visitors to your content or add this service to your site, please contact us at [email protected].

Family-Friendly Content

Website owners select the type of content that appears in our units. However, if you would like to ensure that Content.ad always displays family-friendly content on this device, regardless of what site you are on, check the option below. Learn More



Most Popular
Sponsor Content

These content links are provided by Content.ad. Both Content.ad and the web site upon which the links are displayed may receive compensation when readers click on these links. Some of the content you are redirected to may be sponsored content. View our privacy policy here.

To learn how you can use Content.ad to drive visitors to your content or add this service to your site, please contact us at [email protected].

Family-Friendly Content

Website owners select the type of content that appears in our units. However, if you would like to ensure that Content.ad always displays family-friendly content on this device, regardless of what site you are on, check the option below. Learn More