Advertisement
retirement

No 2021 Social Security COLA Increase Likely

Social Security benefits get a yearly boost to keep up with the cost of living — except when they don’t.

See our most recent forecast: 1.2% COLA for 2021

The Social Security Administration (SSA) is required by law to prevent inflation from eroding the buying power of the benefits paid out to nearly 69 million Americans. It uses a Social Security COLA formula based on the consumer price index to adjust payouts every January. Since prices typically rise, payouts typically rise also. If prices fall, payouts stay unchanged until prices catch back up again. A flat COLA is what Kiplinger is currently forecasting for 2021, given very weak inflation this year so far.

How Is the 2021 Social Security COLA Calculated?

The Social Security Administration ties its adjustment for Social Security benefits to the wage earners’ consumer price index, which is similar to, but not exactly the same as, the urban dwellers’ consumer price index (which drives inflation reporting). Also, the 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; that’s why the final number comes out in October. And it’s likely that those figures (the third-quarter comparison) will be flat — thus, no Social Security COLA for 2021.

Advertisement - Article continues below

But it could turn out to be worse: The rate could be negative — that’s right, deflation, falling prices. Fortunately for Social Security beneficiaries in 2021, the law says that Social Security COLAs cannot be negative; your 2021 benefits won’t shrink.

But, if there is deflation between the 2019 and 2020 quarters, the effect could be lasting and affect any 2022 COLA. Say this year's inflation rate turns out to be -0.3%. In that case, the 2021 COLA would be zero. But the negative value will get deducted from the next positive COLA. In that case, if 2022’s COLA calculation calls for a 1.5% increase, recipients would only see 1.2% (1.5% - 0.3% = 1.2%).

Negative inflation has happened twice before — first in 2009, when a -2.1% rate meant no 2010 COLA, then knocked down the January 2011 COLA from 1.5% to zero, and and carried forward one last hit on the January 2012 COLA, which went from 4.2% to 3.6%. In the second case of negative inflation, there was no January 2016 COLA following a -0.4% inflation rate, and the January 2017 COLA fell from 0.7% to 0.3%.

History of Social Security COLA Adjustments, 2009-2020

  • 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%
Advertisement
Advertisement

Most Popular

How To Buy a Roth IRA When You Make Too Much To Qualify For One
Roth IRAs

How To Buy a Roth IRA When You Make Too Much To Qualify For One

With their tax-free growth and tax-free withdrawals, Roth IRAs are a great deal — if you qualify. If you don’t, well, there’s still a way to get into …
September 23, 2020
High-Tech Aids for Aging in Place
Caregiving

High-Tech Aids for Aging in Place

Apple Watch and other technology provides fast feedback, comfort for older users, and a powerful assist for caregivers.
September 23, 2020
Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check
Coronavirus and Your Money

Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check

The deadline for seniors and veterans to request an additional $500 stimulus check for a dependent child is approaching fast. See how you can claim yo…
September 25, 2020

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.
June 26, 2020
Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check
Coronavirus and Your Money

Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check

The deadline for seniors and veterans to request an additional $500 stimulus check for a dependent child is approaching fast. See how you can claim yo…
September 25, 2020
What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
September 17, 2020
Uncle Sam’s Bite of Social Security
Financial Planning

Uncle Sam’s Bite of Social Security

Retirement surprise: As much as 85% of Social Security benefits are subject to tax when provisional income exceeds $34,000 on a single return or $44,0…
September 10, 2020