The 2021 Social Security Cost Of Living Adjustment (COLA) Is 1.3 Percent

Pamela Kweller RSSA Staff


The Social Security Administration just announced the 2021 Social Security Cost of Living Adjustment (COLA) and it is a modest 1.3%.

Beginning January 2021, more than 64 million Social Security beneficiaries will receive a 1.3% increase in their Social Security benefits.

According to the SSA, “The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.”

COLAs are calculated based on the increase in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) 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.

According to the U.S. Bureau of Labor Statistics, the CPI-W rose 0.6% in July and rose another 0.4% in August. And on October 13, 2020 the U.S. Bureau of Labor Statistics released a statement saying that the CPI-W rose another 0.2% in September, which closed out the third quarter and provided the calculation for the 2021 COLA.

Although a 1.3% Cost of Living Adjustment (COLA) is the smallest we have seen in a few years, it is not the smallest and it is much higher than we anticipated in the beginning months of 2020. This year was a volatile year for the world, our country, and our economy. In the beginning of the year, it was rumored that there would a 0% COLA.

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% and although this year’s COLA is less, it is not 0%. Many beneficiaries will be grateful for this increase.

So, how much of a difference does this COLA actually make for the average retiree? The average monthly Social Security benefit for 2020 is $1,503. With a 1.3% increase, the average beneficiary will expect to receive approximately $20 more each month.

Some Social Security changes in 2021 do not have a positive impact on everyone. For example, workers (and employers) will now be paying more into the Social Security program each month. For example, the maximum amount of earnings subject to Social Security taxes will be increased in 2021 from $137,700 to $142,800. This means in 2021, workers as well as their employers will each be paying an extra $316 in Social Security taxes.

To see all Social Security changes in 2021, click here.