The Social Security annual cost-of-living adjustment (COLA) for 2021 has been announced: 1.3%. This is among the smallest increases ever, and the smallest since 2017. According to the Social Security Administration, the 1.3% increase will translate to an additional $20 for the average recipient, nudging the average monthly check from $1,523 to $1,543. The typical married couple’s increase will be $33 monthly, bumping their monthly check to $2,596. The COLA increase also means that the maximum earnings subject to Social Security tax will increase from $137,700 to $142,800.
The annual COLA is intended to keep seniors’ buying power level with inflation, but senior advocates say that it has failed to do that in recent years. According to The Senior Citizens League, seniors’ expenses have greatly outstripped COLA. For example, prescription drug and Medicare Part B costs have more than tripled since 2000, and homeowners insurance has increased 174%. Notwithstanding COLA increases, Social Security benefits in that same time period have lost 30% of their purchasing power.
This year’s Medicare Part B premium (Medicare for outpatient care) is $144.60. The new premium has not yet been announced, but a big increase could be on the way. Casey Schwarz of the Medicare Rights Center says, “There’s a lot of uncertainty with regard to the effect of the coronavirus on the cost of the premium for next year.” The Senior Citizens League estimates that more expensive Medicare B premiums will wipe out the COLA increase for as many as 43 million recipients. (Congress recently passed legislation that limits next year’s premium increase but collects the full amount going forward according to a repayment formula.)
The Consumer Price Index for Urban Wage Earners and Clerical Workers is the benchmark the Social Security Administration uses to determine COLA. Elder advocates have argued for some time that this index should not be used, because it fails to sufficiently factor in health care and housing, the two costs that more heavily impact older Americans. An alternative index more representative of older Americans’ expenses has been proposed, but has not yet been adopted.