October 8th, 2020 | Miller Advisors

Will Social Security beneficiaries get a COLA in 2021 after all?

A 1% increase would be better than none at all for 60 million Americans.

Older adults, along with workers with disabilities and their families, will receive what may be one of the lowest cost-of-living adjustments to their Social Security benefits in 2021, according to a new estimate by a nonpartisan advocacy group. Roughly a month ahead of the Social Security Administration’s official announcement, the Senior Citizens League is projecting a 1.3% COLA.

The figure represents an improvement over the group’s forecast in May, when Social Security and Medicare policy analyst Mary Johnson said plunging oil prices had “all but wiped out” hopes for a COLA in 2021. Oil futures have regained most of the value they lost in the spring when the coronavirus began spreading, data from the U.S. Energy Information Administration shows.

For the advocacy group, the slight hike in benefits brings little satisfaction. In the past decade, an average annual COLA of 1.4% has fallen to less than half of the 3% average of the previous 10 years, according to the  organization, which is affiliated with the Retired Enlisted Association and has more than 1.2 million members.

If the projection should hold, it would mark the fifth time since 2010 there has been an “extremely low, or even no, annual inflation adjustment” to benefits, the organization notes. There was no COLA in 2010, 2011 and 2016 and only a 0.3% uptick in 2017.

“This is more evidence that our system to adjust benefits for inflation is broken,” Johnson said in a statement. The organization says there’s a 5% chance the COLA could rise above 1.3% and a 15% likelihood that it drops to a lower amount.

The COLA formula stems from a comparison of the Consumer Price Index for urban wage earners and clerical workers in the third quarter with that of a prior year. As one of many critics of the method, the organization is proposing an “emergency” COLA of 2.5% in 2021 and a different way of calculating it in the future. The official COLA announcement is slated for Oct. 13.

 

Article Sources: Financial-Planning.com
By: Tobias Salinger, Senior Editor, Financial Planning
Photo Source: iStock