Will We See a Bump in the COLA for Social Security Next Year?

Experts anticipate roughly a 1% increase beginning in January 2021, and possibly less. The actual amount of the COLA depends on the economy, which has picked up in the past month.

AARP’s recent article entitled “Social Security COLA Forecast for 2021” reports that other experts’ projections are in the same area.

It's small, as far as a COLA. Based on the average Social Security retirement benefit of $1,514.13 a month, a 0.5% increase would be $7.57 a month, and a 1% increase would amount to $15.14.

Social Security COLAs have been pretty rare in the past 10 years. The average COLA over the decade has been a 1.52% increase. The biggest was a 2.8% bump that went into effect in January 2019. There were no COLA increases starting in January 2011 or January 2016.

A reason for a possible small COLA for next year is that inflation has been low. The COLA is determined by the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from the third quarter of 2019 to the third quarter of 2020. The COLA calculation looks at the average CPI-W index numbers for July, August and September of 2019 and compares them with the same third-quarter numbers for 2020. The percentage change between the two quarterly averages is the COLA for the next year. If there's no change, or if there's a decline in the CPI-W, there's no bump in Social Security.

The Social Security Administration typically announces the amount of the COLA in October.

The impact of the COVID-19 pandemic, which has depressed the economy, has made inflation forecasting extremely hard.

For example, some grocery items, such as meat and chicken, have gone up in price. However, the price of a gallon of regular gas has dropped from $2.608 twelve months ago to $2.188 today.

If the increase in Social Security is small enough, some retirees may get a small discount on their Medicare Part B premiums.

The law says that if the COLA for Social Security is less than the increase in Medicare Part B premiums, the premiums would be decreased to prevent a drop in Social Security retirement benefits.

As a result, it could prevent as many as 43 million beneficiaries (about 70%) from having increases in Medicare Part B premiums larger than their Social Security COLA.

Those who have monthly benefits of about $900 or lower would also be protected.

Reference: AARP (Aug. 25, 2020) “Social Security COLA Forecast for 2021”

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