Here is a a way-too-early look at Social Security’s 2021 COLA. We are 6 months away from the beginning of the 2021 measurement period but here are the early indicators for a potential COLA increase in 2021.
2021 COLA (Cost-of-Living Adjustments) Increase Watch
Reasons for COLA Increase in 2021
- Continued tariffs from the U.S.-China tiff could lift the price of goods which is recognized in a higher CPI-W.
- Gas prices are rising higher than normal for the winter period and if it continues the CPI-W will be impacted.
Reasons for a Lower Than Expected COLA Increase in 2021
- The 2019 Q4 CPI-@ increased 1.93% year over year however only .463% over the official measurement period.
- The limited deal to halt the Trade War with China could reduce the price of goods but effectively lower the CPI-W, a component of the calculation.
- U.S. economic growth may slow due to uncertainties in the economy such as trade issues, an election year and the coronavirus.
2020 COLA (Cost-of-Living Adjustments)
The 2020 Cost of Living Adjustment (COLA) increase for the 68 million Americans who rely on Social Security, VA disability, military retirees and other government benefits will be 1.6%. An increase is good news but a modest increase compared to last year’s 2.8%. COLA increases are based on the inflation measurement period of the 3rd quarter (July, August, and September) compared to the previous 3rd quarter.
#BREAKING! Nearly 69 million Americans will get a 1.6% increase in monthly #SocialSecurity and #SSI benefits in 2020. Check #SocialSecurityMatters later this morning for more information: https://t.co/BDNvNs2Opi #COLA #2020COLA
— Social Security (@SocialSecurity) October 10, 2019
“The 1.6 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 63 million Social Security beneficiaries in January 2020. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2019. ” ~ SSA statement
2020 Cola Effective & Payment Dates:
- Retired military veterans, VA rates for compensation and pension for disabled veterans and surviving families will be effective December 1, 2019 and will be reflected on the first check to be paid on December 31, 2019.
- Social Security benefits will be effective beginning with the December 2019 benefits, which are payable in January 2020.
- Federal SSI & SSDI payment levels will be effective for payments made for January 2020.
Why a COLA Increase May Not Help Social Security Recipients
If Medicare climbs at an equivalent or higher rate any increase may be offset by medicare care premiums. Additional senior citizen household spending has typically outpaced COLA because the measurement to determine COLA doesn’t reflect the expenses that impact seniors most, like healthcare (not a heavy COLA calculation) and gas (a heavy COLA calculation).
Will Chained CPI Replace CPI-W?
Chained CPI is a new method for measuring inflation and was recently adopted with the new tax plan. Chained CPI dampens inflation by as much as .2 to .3 percent which has many advocacy groups concerned that this method will carry over to COLA. Few people are against a better measurement of inflation, in fact many advocacy group believe even the CPI-W is not the best measurement for retirees, however, Chained CPI many contend would be a step backward.
COLA (Cost-of-Living Adjustments) are for the following individuals or areas:
- Retired Military Veterans
- Disabled Veterans – See VA Disability Rate Tables
- Veterans’ Pension Benefits – Veterans Pension Rate Tables
- Survivor Benefit Annuitants – Survivors’ Pension Rate Tables
- Surviving Families of Veterans – Parents’ Dependency and Indemnity Compensation (DIC) Tables
- Social Security recipients
- Federal Civilian Retirees
- Supplemental Security Income (SSI)
- Social Security Disability Insurance (SSDI)
- Eligibility for Medicare Extra Help and Medicaid
- Federal & State food and housing assistance programs
|Quarterly CPI-W for 2019 thru 2020|
|Monthly CPI-W for 2019 & 2020|
|Month||2019 CPI-W||2020 CPI-W||YoY Increase|
|2020 Official COLA Measurement – CPI-W
|Third quarter total||739.056||750.599|
|Average (rounded to the nearest 0.001)||246.352||250.200|
|Inflation According to the CPI-W||2.80%||1.60%|
|Quarterly CPI-W for 2018 thru 2019|
|Monthly CPI-W for 2018 & 2019|
|Month||2018 CPI-W||2019 CPI-W||YoY Increase|
The table below shows estimated future cost-of-living adjustments (COLAs) as determined by assumptions in the 2019 Trustees Report.
|COLA Estimates by Year
|2028 and later||2.6%|
The Board of Trustees regards the intermediate estimates as their best estimates.
The CPI-W takes into account eight major spending categories:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services
How COLA is Determined
The Cost-of-Living-Adjustment (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W). It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September).
Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January.
- The COLA increase is only set at the CPI-W if the increase is less than 2 percent.
- If inflation is between to 2 to 3 percent than COLA is set at 2 percent.
- If the CPI-W is greater than 3 percent than COLA is set at 1 percent below the CPI-W.
COLA Versus Federal Pay Increases
Pay increases for current federal workers and COLA for retired workers often differ because they are based on changes in different economic variables.
Federal Pay increases are based on changes in private-sector wages and salaries. Increases in pay for federal civil service workers therefore are indexed to increases in the wages and salaries of private-sector employees. The objective of federal pay policy is to keep pay in the federal government competitive with pay in the private sector.
Cost-of-living adjustments (COLA) ensures that a retiree’s income will purchase the same amount of goods and services after years of retirement that it purchased at the start of retirement.
|Cost of Living Chart by Year (since 1975)|
|Money & Finance||COLA Adjustments|
|VA Disability Rates||Social Security|