Tens of millions of people depend on Social Security, and many of them get most of their income from the program. For them, annual increases in benefits from cost-of-living adjustments are crucial, because they often represent the only boost to income earned by retirees and others who receive Social Security.
In most years, Social Security provides at least a modest COLA to increase the size of monthly checks for the next 12 months. With the COVID-19 pandemic having a major impact on the economy, however, there has been considerable uncertainty about whether there would be a Social Security COLA by 2021. Recently, in May, it seemed that the chances of a boost to the Social Security checks next year would be small. However, in the last month, a huge price boost has signaled a much greater possibility of putting some extra money in the pockets of retirees.
The end of deflation
Social Security analyzes a specific measure of inflation to determine the COLA for each year. Unfortunately for those looking for a big increase in their monthly checks, that inflation measure has seen a dramatic decrease recently. In March, what is known as the CPI-W fell 0.2%. It then followed with an even bigger drop of 0.7% in April, and the May number held steady. If that trend had continued, then there would have been no COLA by 2021.
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However, the CPI-W in June received a big boost. The figure increased 0.6% during the month, returning it to positive territory during the last 12 months.
What drove the gains was a reversal of previous downward price trends, particularly in the energy sector. Gasoline prices soared 10% in June compared to May, and electricity and heating oil prices were also higher. Furthermore, food prices remained relatively strong, especially in the meat, fish and egg category.
A critical time for Social Security COLA 2021
Until now, monthly inflation movements have not really mattered to Social Security beneficiaries. The Social Security Administration only takes into account the monthly readings for July, August, and September when making its COLA calculations. The three-month average for the year is compared to the corresponding reading from last year, and any percentage changes are reflected in the COLA.
The June CPI-W reading of 251,054 compares to a three-month average from July 2019 to September 2019 of 250,200. Therefore, if the benchmark inflation index is held constant for the next three months, Social Security beneficiaries would earn a modest COLA of 0.3% by 2021. However, if prices continue to rise, the size of the COLA could be higher. The sooner such price increases occur, the greater the impact on the three-month average and, therefore, the greater the upward adjustment of monthly Social Security controls.
Be careful what you wish for
The problem with COLAs is that they are designed to reflect the higher prices that Social Security beneficiaries pay. Admittedly, the CPI-W is not a perfect match for the spending patterns of most older people, so if the things that drive that inflation measure don’t cost retirees much more money, then it’s better. get bigger SALARY RESET. However, in general, a high COLA tends to accompany more expensive goods and services that quickly consume the extra money.
For those live checks to verify Social Security, news of any increases in a COLA 2021 check would be welcome. It is not likely to be large, but at least it probably will not be non-existent.
