retirement

What Is the Social Security COLA?

For the average recipient, the 2021 monthly increase won't even cover a fill-up at the gas station — but it beats nothing.

Update: See our latest Social Security COLA forecast for 2022.

The Social Security Administration has announced that benefits will increase by 1.3% in 2021. That is the smallest cost-of-living adjustment (COLA) since 2017 — but consider that, earlier this year, thanks to pandemic-induced price gyrations — retirees were looking at the prospect of no 2021 increase at all.

The estimated average monthly Social Security benefit payable in January 2021 will increase from $1,523 in 2020 to $1,543 — that’s one Andrew Jackson. The average monthly benefit for a couple who are both receiving benefits will rise $33, from $2,563 to $2,596. And the maximum Social Security benefit for a worker retiring at full retirement age will increase from $3,011 per month to $3,148, an additional $137.

Also, more of workers’ income will be subject to the Social Security tax in 2021. The Social Security tax will apply to the first $142,800 of earnings, up $5,100 from $137,700 in 2020.

COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (similar to, but not exactly the same as, the urban dwellers’ consumer price index used in inflation reporting). If prices don’t increase and even fall, the COLA is zero. That happened in 2010 and 2011, as the economy struggled to recover from the Great Recession, and again in 2016, when plummeting oil prices swept away any chance of a COLA for that year.

How Is the 2021 Social Security COLA Calculated?

As mentioned, any COLA adjustment is driven by changes in the wage earners’ consumer price index. National average prices are used, not regional. SSA also calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. The reason the fourth quarter isn’t used is because that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January, and the SSA has to make its adjustment on January 1.

History of Social Security COLA Adjustments, 2009-2021

  • 2021: 1.3%
  • 2020: 1.6%
  • 2019: 2.8%
  • 2018: 2.0%
  • 2017: 0.3%
  • 2016: 0%
  • 2015: 1.7%
  • 2014: 1.5%
  • 2013: 1.7%
  • 2012: 3.6%
  • 2011: 0%
  • 2010: 0%
  • 2009: 5.8%

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
11 Best Monthly Dividend Stocks and Funds to Buy
Kiplinger's Investing Outlook

11 Best Monthly Dividend Stocks and Funds to Buy

Your bills come monthly. Why not your dividend checks? These are some of 2021's best monthly dividend stocks and funds for easier income planning.
May 25, 2021
4 Strategies to Reduce Taxes in Retirement
retirement planning

4 Strategies to Reduce Taxes in Retirement

Don’t let the possibility of higher taxes in the future sink your retirement income plan. Consider these four ways to help manage your taxes, keeping …
May 31, 2021

Recommended

14 Social Security Tasks You Can Do Online
retirement

14 Social Security Tasks You Can Do Online

Why visit a government office to get your Social Security business done? You can do much of that online.
April 2, 2021
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
May 26, 2021
As America Ages, Hard Questions Loom
Economic Forecasts

As America Ages, Hard Questions Loom

Census data show a decline in younger workers. That puts more pressure on Social Security and other programs that support seniors.
May 24, 2021
Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How
social security

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How

It’s always smart to maximize your Social Security benefits, and if you are divorced, one way to do that might be to take them based on your ex’s earn…
May 13, 2021