Social Security recipients will get a modest 1.3% cost-of-living-increase in 2021, one of the smallest-ever increases, due to low inflation. The average increase will amount to a $20 per-month bump for the 70 million seniors and others who collect the benefit.
That would follow this year’s 1.6% increase in the cost-of-living adjustment, or COLA, according to the Social Security Administration, which announced its 2021 increase on Tuesday. The COLA affects the personal finances of about 1 in 5 Americans, which includes Social Security recipients, disabled veterans and federal retirees.
The economic fallout from the coronavirus has reduced tax collections for Social Security and Medicare, likely worsening their long-term financial condition. While a decline in gas prices has kept inflation low in 2020, that may not reflect seniors’ actual costs, analysts say. Health care expenses such as Medicare premiums have been rising much faster than inflation, a problem for older Americans, who tend to require more medical services than younger people.
“We are looking at a period where there are growing inadequacies in Social Security benefits, particularly for people with lower-to-middle benefits,” said Mary Johnson, an analyst with the nonpartisan Senior Citizens League.
Social Security benefits have lost nearly a third of their buying power since 2000, according to the Senior Citizens League. Next year’s 1.3% boost represents one of the program’s smallest-ever increases, following a meager 0.3% increase in 2016 and three years of no increase in 2009, 2010 and 2015, according to the Social Security Administration.
According to the AARP, the program provides at least 90% of retirement income for 1 in 4 seniors. But there’s been no real discussion of either program in the personally charged election contest between President Donald Trump and Democrat Joe Biden.
“It’s very difficult to talk about anything policywise,” Johnson added.
Typical monthly benefit
With the just-announced COLA, the estimated average Social Security payment for a retired worker will be $1,543 a month next year, an increase of $20 form 2020. A typical couple’s benefits would increase $33, to $2,596 per month. The program’s automatic inflation increases are fairly unique, since most private pensions do not offer similar adjustments.
But Diana LaCroix, of Omaha, Nebraska, says her COLA doesn’t cushion rising health care costs most years. And she has new responsibilities: Her eldest daughter and two grandsons moved in with her this summer after the daughter’s landlord decided to sell the house they were renting.
LaCroix, retired from customer service jobs, is now buying diapers some days as she scrounges for good deals on hand sanitizer. “Something’s got to give,” she said. “Something’s got to change.”
People 65 and older went for Trump in 2016, but this time around some election polls show Biden even with or ahead of Trump among older voters.
Trump has kept his promise not to cut Social Security benefits, but this summer he sent confusing signals to seniors, with a plan to temporarily suspend collection of certain taxes that fund the program. While White House staff said it was a limited measure that would have no lasting impact, Trump kept hinting to reporters that he had much bigger tax cuts in mind. Early in the year, he told an interviewer he wanted to tackle “entitlements,” or benefit programs, in a second term.
Biden: Revamp COLA
Biden has a Social Security plan that would revamp the COLA and peg it to an inflation index that more closely reflects changes in costs for older people, particularly health care. That’s been a priority for advocates. He would also increase minimum benefits for lower-income retirees, addressing financial hardship among the elderly.
The former vice president would raise Social Security taxes by applying the payroll tax to earnings above $400,000 a year. The 12.4% tax, equally distributed among employees and employers, currently only applies to the first $137,700 of a person’s earnings. The tax increase would pay for Biden’s proposed benefit expansions and also extend the life of program’s trust fund by five years, to 2040, according to the nonpartisan Urban Institute.
Jane Whilden lives in a household that leans heavily on Social Security. The southern New Jersey resident retired early from a local government job to serve as the main caregiver for her family, including her mother and her husband, a retired trucker.
The program should be top of the list for the presidential candidates, she said.
“Everybody’s getting older and we need to know what’s going on,” said Whilden. “I haven’t heard what they’re going to do. You just hear all sorts of negative things.”
The COLA is only part of the annual financial calculation for seniors. Medicare’s “Part B” premium for outpatient care usually gets announced in the fall as well. That amount generally increases, so at least some of any additional Social Security raise goes to health care premiums.
The Medicare premium for 2021 has not yet been released, but there’s concern that some emergency actions the government took in response to the coronavirus pandemic could lead to a big jump. That has prompted Congress to pass recent election-year legislation that limits next year’s premium increase but gradually collects the full amount later on, under a repayment mechanism.
“There’s a lot of uncertainty with regard to the effect of the coronavirus on the cost of the premium for next year,” said Casey Schwarz, a policy expert with the Medicare Rights Center advocacy group. The Medicare monthly premium is now $144.60.
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