Social Security's 2021 cost-of-living increase may be among smallest ever
The nation's 65 million Social Security recipients may be in for disappointment in 2021, with some advocacy groups projecting the program's annual cost-of-living increase at only 1.3%. That would be among the stingiest hikes in government retirement benefits, which have lost nearly a third of their buying power since 2000, according to the non-partisan Senior Citizens League.
That analysis is based on consumer price data through August — the same data that's used by the Social Security Administration to determine its annual increase. The agency said it will announce its annual cost-of-living (COLA) increase in October.
A decline in gas prices has kept inflation low in 2020, but that may not reflect seniors' actual costs, the senior citizen's group said. Health care expenses such as Medicare premiums have been rising much faster than inflation, a problem for older Americans because they tend to require more medical services than younger people.
Because Social Security increases aren't keeping up with seniors' actual costs, the benefits have lost 30% of their buying power since 2000, the group said. A COLA increase of 1.3% for 2021 "could increase financial pressures for most beneficiaries, and particularly for people with low to average benefits," said Mary Johnson, a policy analyst for the Senior Citizens League.
It would also represent one of the program's smallest-ever increases, following a meager 0.3% increase in 2016 and three years of no increases in 2009, 2010 and 2015, according to the Social Security Administration.
At the same time, Medicare premiums are expected to rise fast than the COLA increase. Because many seniors have Medicare costs deducted from their Social Security checks, the boost in health care expenses is likely to effectively wipe out their Social Security cost-of-living increase.
Funding under pressure
The forecast for a modest 2021 benefits boost comes as the old-age insurance program ifaces new headwinds.
The coronavirus pandemic brought historic levels of joblessness — an issue for the program because its main source of revenue is payroll taxes. With fewer Americans in the workforce due to layoffs, revenues for the program have taken a hit.
That comes on top of rising demand for benefits from aging Baby Boomers, some of whom may be forced into retirement earlier than they planned due to the tough job market.
Separately, President Donald Trump has said he would like to eliminate the payroll tax — a step that would effectively gut the program's funding. If that were to occur, the Social Security retirement trust fund would run out in 2023, while the disability trust fund would be depleted next year, according to an August analysis by the Social Security Administration.