The roughly 70 million American beneficiaries of Social Security and Supplemental Security Income (SSI) will get an increase of 1.3% in 2021, according to an announcement today from the Social Security Administration.
The 1.3% COLA will be effective with benefits payable in January to more than 64 million Social Security beneficiaries. Also, the increased payments to more than eight million SSI beneficiaries will begin on December 31, the release said, noting that some people receive both Social Security and SSI benefits.
The annual increase is tied to the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics, and some other adjustments that take effect in January of each year are based on the increase in average wages.
Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $142,800 from $137,700, the release noted.
Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL), last month had forecasted the 1.3% change. She noted that this marks the second-lowest ever paid and the fifth time since 2010 that there will be an extremely low—or even no—annual inflation adjustment.
According to an analysis by TSCL, Social Security checks in 2020 are almost 20% lower than they otherwise would be due to the long-term impact of extremely low annual inflation adjustments.
“People who have been receiving benefits for 12 years or longer have experienced an unprecedented series of extremely low cost-of-living adjustments (COLAs). What’s more, those inflation adjustments do not account for rapidly rising Medicare Part B premiums that are increasing several times faster than the COLA. The situation is causing those with the lower Social Security benefits to see little growth in their net Social Security income after deduction of the Part B premium,” she said in a statement.
The new analysis, which compared the growth of retiree benefits from 2009 through 2020, found that an average retiree benefit of $1,075 per month in 2009 has grown to $1,249 in 2020, but, if COLAs had averaged 3%, that benefit would be $247 or 19.8% per month higher today, and those individuals would have received $18,227.40 more in Social Security income over the 2010 to 2020 period, Johnson said.
But COLA averaged just 1.4% during that period, Johnson said. She pointed out that in 2010, 2011 and 2016, there was no COLA payable, and in 2017, the COLA was just 0.03%. “But COLAs have never remained so low, for such an extended period of time, in the history of Social Security,” she said.
Johnson said the suppressed growth in Social Security benefits not only creates ongoing benefit adequacy issues for retirees, but also Medicare budget problems when the COLA is not sufficient to cover rising Part B premiums for large numbers of beneficiaries. She explained that when the dollar amount of the annual Medicare Part B premium increase is greater than the dollar amount of an individual’s annual COLA, the Social Security benefits of about 70% of Medicare beneficiaries are protected by the hold-harmless provision in the Social Security Act. The Medicare Part B premium of those individuals is reduced to prevent their net Social Security benefits from being lower than the year before. But, she said, roughly 30% of beneficiaries are not protected by the provision, and they can be subject to substantial spikes in the Part B premiums.
Johnson said a provision of a recently enacted government spending bill restricts Part B premium increases in 2021, capping the Part B premium increase for next year at the 2020 amount plus 25% of the difference between the 2020 amount and a preliminary amount for 2021.
But while restricting a potential Part B spike in any given year is good news for beneficiaries, the problem itself is not going away any time soon, she said. “Unless Congress acts to boost Social Security benefits and finds a better way to adjust benefits for growing Medicare costs, this problem will continue occur with greater frequently in the future,” Johnson said.
“This approach of imposing future premium repayments doesn’t fix the problem. It’s like a payday loan. It just makes the premiums grow faster later, and the problem is triggered again the next time when COLAs are extremely low. The Senior Citizens League is working to get legislation introduced that would provide an emergency COLA of 3% in 2021,” she said.