Pamela Kweller RSSA Staff
2020 has been a volatile year for the world and especially for America. As the COVID-19 pandemic hit our country, our economy has been on a rollercoaster.
At the beginning of the health crisis, there was concern and speculation, with good reason, that Social Security beneficiaries wouldn’t receive a COLA in 2021. COLA stands for Cost of Living Adjustment. Since 1975, Social Security benefits have had this automatic annual increase known as COLA as a way to keep pace with inflation. There have only been a few years with a 0% COLA.
According to the SSA, “Social Security is the major source of income for most of the elderly.” Close to nine out of ten individuals age 65 and older receive Social Security benefits. Millions of seniors rely on their Social Security monthly payments and rely on receiving a COLA each year.
Historically, the average COLA has been 2.8%. Over the last 12 years, there have been three years with a 0% COLA. Those years were 2009, 2010, and 2015. The 2020 COLA was 1.6%. To put that in perspective, if a beneficiary was receiving a $1,000 monthly benefit in 2019, currently (in 2020) they would be receiving $16 more each month. While that may not seem like a significant amount of money, it adds up over time. The unprecedented times we are in make any increase in income even more beneficial.
Currently many seniors are struggling financially and a 0% COLA would be another hardship to overcome. However, the COLA forecast has turned around and it seems that there will be a COLA for 2021 after all. And although unlikely, there’s a possibility it could even be higher than the 2020 COLA.
How can that be?
COLAs are based on the changes in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). According to the SSA, “The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor. By law, it is the official measure used by the Social Security Administration to calculate COLAs.”
COLAs are calculated based on the increase in the CPI-W in the third quarter of the current year compared to the increase in the CPI-W in the third quarter of the previous year. The third quarter includes July, August, and September.
As the COVID-19 pandemic hit our country, the beginning projections for the 2021 COLA were not looking good. It was rumored that 2021 would be one of those years with a 0% COLA. However, those projections were based on the deflation our country was witnessing in the early stages of the pandemic.
Our economy has changed a lot over the last few months. And more recently, we have seen a great deal of inflation. We are in the third quarter and this is when it matters most. According to the U.S. Bureau of Labor Statistics, the CPI-W rose 0.6% in July and rose another 0.4% in August.
As September comes to an end, the third quarter will end and the COLA will be calculated. Like every year, the COLA will be announced and published in the Federal Register in October. You can also check the RSSA resource center for the latest Social Security updates. 2020 has been a rocky year so any COLA, other than 0%, will be greatly appreciated by the 65 million Social Security beneficiaries.