InvestorsHub Logo
Followers 329
Posts 92770
Boards Moderated 3
Alias Born 07/06/2002

Re: None

Friday, 09/18/2020 8:46:01 AM

Friday, September 18, 2020 8:46:01 AM

Post# of 38891

The 2021 Social Security COLA Will Be Disappointing -- but at Least There'll Be One

Gains for seniors in January's Social Security checks are likely to be less than last year's but still significant.



Getty Images.

By Dan Caplinger
Sep 13, 2020 at 12:01PM

A 0% COLA is off the table

The COLA for each year depends on a particular measure of inflation. The CPI-W represents prices of a range of goods that people need, and when the overall costs of that basket of goods go up, it pushes the index higher.

However, 2020 brought deflation into the mix. When the COVID-19 pandemic hit, energy prices in particular plunged, as demand for gasoline and other fuels for transportation essentially disappeared. That sent CPI measures downward, and as recently as May, the CPI-W reading was lower than it had been at the same time in 2019. If prices had stayed that low, then it would've meant no COLA for Social Security for 2021.

Prices did start to move higher more recently, as reopening efforts helped to push energy prices in particular back upward. It's taken a couple of high-inflation months in June and July to get back to a more typical price trajectory, but now, seniors are almost guaranteed to get something extra in their checks starting in January.

Two down, one to go

The Bureau of Labor Statistics gave Social Security recipients its latest update on the measure of inflation on Friday. The August inflation figures included a 0.4% rise for the CPI-W, bringing the level to 253.597.

When you combine that number with July's CPI-W reading 252.636, you get a two-month average of 253.117. The calculation is still missing one month, because you have to compare this year's three-month average from July to September with last year's average over the same period to get the official COLA number.

Nevertheless, you can get a sense of where things are headed. The 2020 two-month average is 1.2% higher than the 250.200 reading from 2019's three-month period. If September's CPI-W number is flat compared to August, then the COLA would indeed be 1.2%. If September matches August's 0.4% rise, then the COLA would rise slightly to 1.4%.

How big a raise will that mean?

COLAs get applied to Social Security checks, so the bigger your benefit, the bigger your increase will be. The average retiree in August got $1,517 per month from the program, so a 1.2% to 1.4% COLA would work out to between $18 and $21 more in monthly checks in 2021. The typical surviving spouse gets a $1,432 monthly payment right now and could see $17 to $20 extra next year.

Even the maximum benefit won't see a huge raise. The theoretical limit for someone age 70 is $3,790 per month. A COLA would likely come in between $45 and $53 per month.

It's nice, though, that Social Security will at least get something tacked onto their monthly benefits in 2021. As hard as it is to live on a fixed income, COLAs are essential to make sure the purchasing power of Social Security doesn't erode over time.

https://www.fool.com/investing/2020/09/13/2021-social-security-cola-will-be-disappointing/







Dan

Join the InvestorsHub Community

Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.