It’s early yet, but it looks as if there might not be an annual cost-of-living adjustment to Social Security benefits for 2021, according to research released Tuesday by The Senior Citizens League, a nonprofit advocacy group for older Americans.
Social Security benefits increase automatically if the Consumer Price Index measuring inflation for urban workers (CPI-W) increases in the third quarter (July, August and September) of the current year over the third quarter of the previous year.
“The recent unprecedented plunge in oil prices has all but wiped out the prospect of a Social Security cost-of-living adjustment for the next year,” said Mary Johnson, Social Security analyst for the group and author of the study. However, Johnson noted, that estimate might change since there are still five months of CPI data to be collected before the Social Security Administration announces the COLA in October.
In 2020, more than 61 million Social Security recipients received a 1.6% COLA, which boosted the average Social Security benefit by $23.40 per month, to $1,460. The COLA raised the maximum benefit for someone who retires at full retirement age in 2020 to $2,861 per month, a $73 increase in the maximum monthly benefit over 2019.
The average and maximum Social Security benefits do not include delayed retirement credits. Social Security recipients who delay claiming benefits before full retirement age earn an additional 8% per year for every year they postpone claiming benefits up to age 70. Those who retire before full retirement age reduce their benefits for the rest of their life.
The 1.6% cost-of-living adjustment in 2020 followed a 2.8% increase in 2019, a 2.0% hike in 2018 and a meager 0.3% COLA in 2017. Because of low inflation, there was no COLA in 2016. As a result of the Great Recession, there were no COLAs in 2008 and 2009. Next year could see a repeat of the no-COLA scenario.
Social Security benefits are one of the few types of retirement income to be automatically adjusted for inflation. Yet despite the adjustments made in most years, many retirees struggle with rising prices.
The league’s latest study found that Social Security benefits have lost 30% of their buying power over the past 20 years, which represents a small improvement from the 33% decline in purchasing power calculated in the previous study issued last year.
While lower prices can be good news in the short run, the deflationary trend suggests no COLA in 2021, the study said.
Between January 2000 and January 2020, Social Security COLAs increased benefits by 53%, but the costs of goods and services purchased by typical retirees rose by almost twice as much — 93.3%. For every $100 a retired household spent in 2000, that household can only buy about $70 worth of the same goods and services today.
Premiums and out-of-pocket costs for Medicare, housing costs and homeowner’s insurance were among the expenses rising most rapidly over the past year.
For most retirees age 65 and older, most or all last year’s COLA was offset by rising Medicare premiums. Monthly premiums for Medicare Part B are deducted directly from Social Security benefits.
In 2020, most Medicare beneficiaries pay $144.60 per month for Part B, which pays for outpatient services and doctors’ fees. But high-income retirees pay much more based on their income, up to $491.60 per month per person. Medicare Part B premiums have increased 218% over the past 20 years from $45.50 per month in 2000.
Prescription drugs have increased even more, rising 252% over the past 20 years, from an average out-of-pocket cost of $1,102 per year in 2000 to $3,875.75 per year in 2020, according to the league’s survey of average retiree costs. Average monthly premiums for supplemental Medigap insurance, which covers deductibles and co-pays for Medicare beneficiaries, rose 148% over the same 20-year period, from an average $119 per month in 2000 to $295.64 in 2020.
The majority of Americans who receive Social Security depend on their benefits for at least 50% of their total income, and one-quarter of beneficiaries rely on it for 90% or more of their income. The current recession is expected to deplete the Social Security trust funds sooner than previously forecast — as early as 2029 — which will force Congress to tackle long-term financial reforms to shore up the nation’s retirement system.