The announcement of the Social Security cost-of-living adjustment for 2021 is a few weeks away, but the Senior Citizens League is already figuring that recipients will likely see a 1.3% change, based on data in the Consumer Price Index through August.

And though it is better than the 0% number that was predicted a few months ago, Mary Johnson, Social Security policy analyst for The Senior Citizens League, said it is simply not enough. In fact, she noted, it would be the second-lowest ever paid.

Johnson said based on her probability analysis, there is only a 5% chance the COLA could rise above 1.3% and a 15% chance it could be lower. The inflation rate during May through August suggests the COLA could go up to 1.4%, but the rate from June through August, and a new downward trend in gasoline prices, seem to indicate it will probably be 1.3%, which would raise the average benefit of $1,517 per month by $19.70, Johnson said.

She added that the big issue they are watching is the impact of Covid-19 on Medicare. She said based on new estimates from the Congressional Budget Office, Medicare Part B premiums would be 12%, twice that of a Medicare Trustee forecast in April. And that, she said could be in the vicinity of a $17.40 increase.

The increase in Medicare Part B premium could be known in October at the time of the announcement of the Social Security COLA, Johnson said.

“If you look at what the 1.3% raises in average benefits and you deduct $17.40 from that, [the] Medicare Part B premium for anybody with below-average benefits is going to take everything they get in COLA,” she said.  

Should the 1.3% forecast stand, this would mark the second-lowest ever paid and fifth time since 2010 there will be an extremely low—or even no—annual inflation adjustment, Johnson said. “This is more evidence that our system to adjust benefits for inflation is broken.”

Johnson noted that when the COLA became automatic in 1975, the average COLA was 8.7% in the first eight years and it was 14.3% in 1981. Then again, the annual inflation rate was higher around that time and had reached the low double digits as the '70s gave way to the '80s. 

But the Bureau of Labor Statistics significantly changed how it measures inflation, and that has influenced Social Security over the years. Seniors, she explained, have experienced rising costs that have not been accurately reflected in the COLA, particularly for healthcare and housing which have grown several times faster than the overall rate of inflation.

COLAs had averaged 3% from 1999 to 2009. Since the end of the Great Recession, COLAs have averaged 1.4%, Johnson said. And there were three years when the COLA was zero—in 2010, 2011 and 2016. It was just 0.3% in 2017.

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