Will You See a Bump in Social Security Check for 2021?
The cost of everyday goods like groceries and medicine only seem to go up. But will seniors see any increase in their Social Security checks for 2021 to help offset these increases?
According to The Street, there is a strong possibility that retirees will see a cost of living adjustment (COLA) of around 1.3% for 2021. This would be one of the smallest increases on record and result in an extra $20 a month for the typical senior. Our estate planning attorney in The Villages takes a closer look.
Better than Nothing
As many of our readers know, retirees have not seen a cost of living adjustment every year. For example, they saw no increase in 2010, 2011 or 2016. Instead, COLAs are based on a government measure for inflation, currently the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This measure tracks any increase in the cost of a basket of goods that typical consumers would purchase, such as electronics and gasoline.
There was some question earlier in the year about whether there would be a COLA for 2021. The coronavirus pandemic initially sank the price of gas, which is a key component of the CPI-W. Back around March and April it looked as if the consumer price index would show no increase for the year, thus no cost of living adjustment for 2021.
But things have changed. With the economy recovering, the cost of gas has continued to rise, which has pulled up the entire index. It looks as if a modest COLA will be in the works for 2021. The government will officially announce any COLA for 2021 in October of this year.
Still Too Low
As The Street mentions, the CPI-W is weighted toward purchases that younger consumers make. Those that seniors make—such as for health aids and medicine—are given less weight in the CPI-W calculation, but these costs increase dramatically every year.
The COLA is designed to protect retiree buying power. But studies have shown that buying power has eroded anyway—about 30% over the past 20 years. The modest expected increase in 2021 is unlikely to change that.
Will Increase in Medicare Premiums Eat Up Your COLA?
The majority of people receiving Social Security benefits are also on Medicare once they reach age 65. Just as the cost of groceries goes up every year, Medicare premiums increase as well.
Helpfully, the “hold harmless” provision in the law prevents anyone from getting a smaller Social Security check year to year if they pay their Part B premiums out of their check directly. However, this does not mean that Premium increases can’t eat up most of your annual COLA increase.
And that seems highly likely. Some sources are estimating that Part B premiums could rise around $17.40 a month in 2021. For the average senior, they would receive only a few dollars more each month once their Part B premiums are deducted.
Looking Out for the Community
Millhorn Elder Law Planning Group provides legal services to The Villages. Our practice encompasses estate planning, guardianship, real estate, and personal injury. Please call us at 800-743-9732 if you have a legal issue you need assistance with. Our consultations are free and confidential!