For the nearly 65 million social security beneficiaries, October is the most anticipated month of the year. The Social Security Administration announces all changes for the next year. This includes an increase in the retirement age, higher taxes for high-income earners, and an increase in the retirement income test allowance.
Among all these changes, nothing is more important than the adjustment of the cost of living of Social Security-the increase in welfare for beneficiaries every year is the cause of inflation.
For social security recipients, this is the most important time of the year
Since 1975, the COLA of the Ministry of Social Security has been established by linking the plan to urban wage income and the consumer price index (CPI-W) for civilian workers. CPI-W has more than six major expenditure categories and dozens of subcategories, each of which has its own weight. Every month, the Bureau of Labor Statistics reports CPI-W as a number, which can quickly and clearly determine whether the price of a predetermined package of goods and services has risen or fallen compared to the previous year.
The Social Security Administration’s COLA did not consider the readings for the whole year. In the COLA calculation, only the CPI-W readings in the third quarter of the current year (July to September) and the third quarter of the previous year are important. The other nine months can help determine the trend, but it is impossible to determine whether the social security beneficiaries in the coming year will increase their salary.
If the average CPI-W reading in the third quarter of this year is higher than the average CPI-W reading in the third quarter of the previous year, the beneficiary’s expenditures will be increased. This “growth” is equal to the year-on-year growth percentage of the average CPI-W, rounded to the nearest one percent. Since BLS’s September inflation report is the last piece of the puzzle to calculate COLA, the second week of October is always when the beneficiary finds out if they can make more money.
By 2021, how much will monthly benefits really increase?
By 2021, the beneficiaries will indeed get a raise. According to the September inflation report from the US Bureau of Labor Statistics (BLS), Social Security recipients can expect that their monthly benefits will increase by 1.3% by January. What does this actually mean for ordinary social security beneficiaries? Let’s take a closer look.
Currently, approximately 64.8 million people receive benefits, of which 46.1 million are retired workers. This is not a surprising number, given that the social security program is designed to protect older people who can no longer support themselves. By December, the Social Security Administration expects that the average retirees will receive a net benefit of $1,523 per month. A 1.3% Coke expenditure will increase the monthly income of the average retired worker in 2021 by $20, or $1,543.
Disabled beneficiaries are second only to elderly beneficiaries. SSA estimates that by December, 8.25 million disabled workers will take home an average of $1,261 per month. Adding 1.3% of Coke to this number will increase the average monthly income of disabled workers by about US$16 to US$1,277.
Social security also protects the survivors of the deceased. As of September, nearly 5.9 million people are receiving survivors’ pensions. Although the SSA did not provide an estimate of the average survivor’s benefit in December, I personally expect it to increase from $1225.96 in September 2020 to around $1,229 in December. If calculated based on the 1.3% Coke price, next year’s monthly expenditure will increase by approximately US$16 to US$1,245.
Good news/bad news for Social Security in 2021
Considering that the 2019 Coronavirus Disease (COVID-19) pandemic caused the prices of many goods and services to fall between March and May, it is actually a bit surprising that beneficiaries did not receive COLA treatment at all. Food and price increases in housing and medical services have led to a surge in inflation, which is the 1.3% increase that social security recipients will receive in 2021.
Although any positive COLA is better than no COLA, there is a downside. The 1.3% COLA is linked to the second-lowest positive COLA since 1975, which has permanently maintained the 11-year inflation rate growth. Since 2009, the average annual COLA has been only 1.4%, and there has been no COLA (ie deflation) in 3 of the past 11 years.
The problem for social security beneficiaries, especially the elderly, is that 1.3% of Coca-Cola cannot even keep up with their medical services and housing inflation. Continuously low or non-existent COLA means that the purchasing power of retired workers continues to decline.
Once again, this is good news, and recipients will receive COLA in 2021. However, when fueling the flames, it is almost certain that the real value of Social Security dollars will fall in another year.