2021 Social Security Adjustment Won’t Address Rising Costs

The Social Security Administration announced Tuesday that the social security cost-of-living adjustment (COLA) for 2021 would be 1.3% — the lowest increase since 2017. For the 70 million seniors who collect social security or SSI benefits, this increase shakes out to be around $20 extra each month, which is a $4 decrease from the 1.6% adjustment of 2020

The rate has been steadily decreasing over the years, and the current economic downturn has meant less tax collection for these funds. Though any increase is still a good sign — 2009,  2010, and 2015 all saw no growth at all, and any upward change wouldn’t be enough to combat the steadily increasing healthcare prices for seniors.

Rising medical costs wipe out the increase

Organizations like the AARP have long supported larger COLAs, citing the failure to offset the rising medical costs as the biggest driver. The 1.3% increase will essentially be erased for 43 million people from the soaring prescription costs and the bump in the cost of Medicare Part B premiums. 

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In June 2020, social security benefits were around $1,514 a month or $18,170 a year, which isn’t much – Especially when considering that 90% of the income for 1 in 4 retirees comes from social security payments. The coronavirus pandemic has only heightened the need to stretch the benefits to cover expenses.

When it comes down to it, a $20 bump isn’t going to make a difference. Particularly when the maximum earnings that are subject to social security taxes are increasing to 3.7%

A different measurement is needed

The annual COLA adjustments are based on the consumer price index for urban wage earners or clerical works (CPI-E), which focuses on workers who are under the age of 62. Given that the vast majority of people who collect social security benefits are over 60, this is not an accurate representation of seniors’ cost or how inflation impacts them. Not to mention the fact that it leaves out Medicare costs entirely. 

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The consumer price index for the elderly (CPI-E) is a much more accurate measurement that would include the price of medicare, prescriptions and housing costs for the population it represents. The transition to the CPI-E is a part of Joe Biden’s reform proposals.

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Taylor Leamey

Personal Finance Reporter

Taylor Leamey is a personal finance reporter at The Simple Dollar who specializes in personal loans, student loans, mortgages, renters, and financial policy. Her reporting has also been featured at CreditCards.com, Interest.com, Reviews.com, MyMove.com, and elsewhere.

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  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.