Even in the best of times, life can be challenging for seniors living on a steady income. For most retirees, Social Security is the bulk of their financial support. The program is especially useful because it adjusts its payouts upwards to reflect the unforgettable rise in prices that everyone has to pay for the goods and services they need.
Throughout 2020, there were concerns that the impact of the COVID-19 pandemic would mean that seniors would not receive an annual cost of living in their Social Security checks 2021. That could have crushed millions of retirees who are already extreme precarious financial situations. Now, however, it looks as if recipients of Social Security will indeed receive a COLA at the beginning of next year – and there is even a possibility that it could top the impetus they received back in January 2020.
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Why seniors feared they would not receive COLA for Social Security by 2021
As recently as two months ago, things looked bleak for social security recipients. A long period of deflation during the initial stages of the coronavirus crisis had sent the inflation index used by the Social Security Administration to sharply calculate annual COLAs. The May reading of 249,521 for the CPI-W measure of inflation levels was down from the year-earlier level. Although Social Security will never cut benefits for months, even during deflationary periods, even a flat benefit would prevent some financially fragile seniors from catching up.
Last month, June figures came out that at least gave some hope for a positive social security COLA in 2021. An unusual jump of 0.6% in the metric for the month brought the CPI-W above where it had been in June 2019. Yet even with that turnout, the size of the COLA still did not seem likely to be particularly impressive.
An even greater impulsive impulse
Earlier this week, the Bureau of Labor Statistics published July inflation figures. They brought another surprise in the form of a second-rate increase of 0.6% in the benchmark benchmark for key prices.
The July figure of 252,636 compares with a three month average from July 2019 to September 2019 of 250,200. That’s a rise of almost 1%, and if the figures for August and September coincide with July, that’s what the 2021 COLA will be. That would be less than the 1.6% COLA Social Security gave in 2020, but it would at least provide some relief for stressed seniors.
However, some believe that inflationary trends are not just a one-time phenomenon and may become more normal instead. If the CPI-W compares with the recent 0.6% increases in August and September, it would raise the 2020 three-month average to around 254,150. That would be just enough to produce a 1.6% 2021 COLA, in line with the 2020 figure.
Get used to tight times
Unfortunately, recipients of Social Security have become accustomed to not increasing Social Security much. Since 2010, pensions have been available for three years in which they received no COLA at all, and six more when the COLA was 2% or less. Only twice have they received bigger boosts – and even then, COLAs of 2.8% and 3.6% are not exactly like hitting the lottery.
It does not matter where COLA of 2021 ends exactly, it will only have a marginal impact on benefits. Earlier this year, Social Security reported that its average benefit for retirees was $ 1,503 per month. A COLA of 1% would add $ 180 per year to what people receive from Social Security. A 1.6% COLA would represent an annual increase of $ 288 after the average retirement benefit.
Social security is more important than ever, and despite the magnitude of each benefit increase, recipients will appreciate what they can get. Rising prices are not good news for people with a steady income, but a higher COLA would at least be something of a silver lining.
