The Social Security Administration announced that the official Cost of Living Adjustment (COLA) for 2021 will be an increase of 1.30%. This is slightly less than the 1.60% bump we saw in 2020, and much smaller than the 2.80% increase in benefits in 2019.
In dollars, this equates to an additional $20 per month to the average monthly benefit for all recipients, from $1,523 in 2020 to $1,543 in 2021. An average couple receiving benefits will see an increase of approximately $33 per month.
Why did this take place, and why is this important?
The Social Security Act ties the annual cost of living adjustment to the increase in the Consumer Price Index (CPI) as determined by the Department of Labor’s Bureau of Labor Statistics. According to the Bureau of Labor Statistics, the previous 12-month change through August 2020 was 1.3%. This is where we get the percentage increase in benefits for next year.
More than 85% of people 65 and older receive Social Security payments. Among this population of 69+ million Americans, half of married couples and 7 in 10 unmarried persons receive 50% or more of their income from Social Security, making this the primary source of retirement income for a large proportion of our population. Politicians and organizations like the Senior Citizens League are working to get legislation that would provide an emergency COLA of 3% for 2021, however it remains to be seen if this would be tagged on to a second stimulus bill expected to be discussed in the “lame duck” session before this year is out, or attempt to be passed on its own.
One of the goals of financial planning is to develop a strategy that will limit the impact of government programs on your livelihood. If you or your friends/family would like to review their financial goals, please reach out to us.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.