The Social Security Administration announced a 1.3% cost of living adjustment that will take effect in January 2021.
It will be the lowest COLA since 2017, when benefits increased by just 0.3%.
For retired workers, average monthly benefits will rise from $1,523 to $1,543.
Disabled workers will see their benefits increase from $1,261 to $1,277 on average.
Why Is the COLA So Low?
For starters, COLAs are never what youd call generous.
From 2010 to 2019, COLAs averaged just 1.52%.
The highest increase in the past 10 years came in January 2019, whenSocial Security benefitsrose by 2.8%.
In 2015, recipients got no raise whatsoever.
The 2021 COLA is low because inflation is low, at least according to the official definition.
The CPI-W surveys households to measure price changes for a basket of goods and services.
But thats a flawed way to measure the actual costs retirees face.
The CPI-W surveys urban workers about what they pay for a basket of goods and services.
It excludes households that dont have anyone in the workforce, i.e., households consisting only of retirees.
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A typical urban worker has much different spending patterns than a senior citizen.
But COLAs havent kept up with ballooning health care costs.
What if Your Social Security COLA Isnt Enough?
But this years low COLA will be hard even on seniors with other sources of income.
Interest rates are close to zero, and theyre expected to stay low through 2023.
Its also worth reviewing therecent history of COLAsto see just how little those benefits will go up each year.
Does that monthly payment look like enough to survive on?
With Social Security, it pays to wait.
Your benefits are reduced by five-ninths of 1% for every month you claim before full retirement age.
For each year you delay beyond full retirement age, you get an extra 8% until age 70.
Granted, not everyone will be able to wait until theyre 70 to start Social Security benefits.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
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