shot of social security card
The Covid-19 crisis has upended the U.S. economy. Now retirees may face another financial challenge: a lower Social Security cost-of-living adjustment in 2021.
Based on data for the first quarter of 2020, the estimated Social Security COLA for 2021 could be just 0.8%, according to The Senior Citizens League, a nonpartisan advocacy group for older Amercians.
The number is an early estimate based on first quarter data from the Bureau of Labor Statistics. It could be subject to change by the time the change for next year is announced in October.
But the numbers are reflective of what is happening in the economy.
The Social Security Administration calculates the COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
“What’s going on in the first quarter is, primarily, gasoline prices plunged,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League. “That’s driving it down because the gasoline is weighted more heavily for the CPI-W and that drives down the COLA.”
A 0.8% increase would be the lowest adjustment since 2017, when it was 0.3%. However, it would also be better than 2016, 2011 and 2010, when the COLA was zero.
Right now, we’re seeing the immediate effects of the coronavirus on the economy. That may be a domino effect that could hit seniors particularly hard, Johnson said.
“Older Americans are going to be hit by longer term effects,” Johnson said. “Their retirement portfolios have gone down.
“They’re much more reliant on their Social Security.”
Currently, there are 65 million Americans who receive Social Security benefits, 45 million of whom are retired workers. Their average monthly benefit is $1,503.
Prior to the 1.6% increase this year, the average monthly benefit was $1,479.
A lower adjustment for 2021 would trigger a rule called the hold harmless provision, which protects certain people from having their Medicare Part B premiums go up more than their COLA adjustment. Nevertheless, individuals above certain income thresholds will pay premium surcharges as a result, Johnson said.
Meanwhile, older Americans will face likely face more financial challenges amid Covid-19, including hospitalizations that can result in higher out-of-pocket costs if they use Medicare Advantage plans.
More from Personal Finance:
What Social Security beneficiaries need to know about stimulus payments
More than half of Americans can’t pass a basic quiz on Social Security
Unemployed and eligible for Social Security? Here’s what you need to know