There has been quite a bit of speculation about what the Social Security cost of living adjustment (COLA) would look like for 2021. With the USA falling into a recession and millions of people out of work, hope was not high for a large Social Security COLA this year.
Social Security COLA for 2021 Announced
Retirees will get just a 1.3% increase in their Social Security benefits in 2021, according to an announcement from the Social Security Administration, Tuesday morning. This adjustment will amount to about $20 more, per month, in Social Security benefits and should bring the average Social Security benefit to around $1,540, per month. Retirees living on Social Security alone face the risk of falling into poverty as they age.
How does this raise in Social Security Benefits compare to previous years? As I’ve previously written, over the past decade, the Social Security Cost of Living Adjustment has averaged just 1.4%. There have also been several years when the COLA was zero. The average Social Security COLA was around 3% between 2000 and 2009. We saw a zero cost-of-living adjustment for Social Security in 2010, 2011, and 2016.
The Social Security COLA for 2021 is lower than the increase in expenses many retirees face. Many estimated that the Social Security COLA for 2021 would have been as low as zero, so this adjustment could be considered a win. While the current recession may allow people to save money in certain areas of their budgets, prices for things like medical care and medication continue to increase well beyond the general inflation rates.
The premium increases for Medicare Part B have not yet been announced, but they will likely eat up most of the Social Security COLA for 2021. Additionally, older Americans are at a greater risk of needing medical care for the Coronavirus, and treatment is estimated to cost between $60,000-$80,000. These numbers can increase dramatically for the most severe cases.
2020 Election and Social Security Benefits
Biden Plans to Increase Social Security Benefits
Joe Biden has released a plan that will greatly increase the minimum Social Security benefit you can receive. The number of American retirees living near the poverty line is staggering. Former Vice-President Joe Biden has proposed an increase to the special minimum Social Security benefit. This specific Social Security benefit limit was originally created to help provide lower earners with enough Social Security benefits to survive, and hopefully avoid falling into poverty. Presidential candidate Biden has called for setting the minimum Social Security figure at 125% of the federal poverty line. In plain English, this would raise the minimum benefit from $886, per month, to $1,301, per month, as of 2019 numbers, according to the Penn Wharton Model. For comparison, the average Social Security benefit was just $1,461, per month, in 2019, so this increase would likely benefit a large number of retirees.
Trump Promises Could Bankrupt the Social Security Trust Fund
Before Donald Trump was diagnosed with COVID-19, he implemented a temporary payroll tax deferral. This would allow both employees and employers to defer paying Social Security payroll taxes through the end of 2020. They would then be forced to make up the payment next year. Trump has stated that if he is reelected, he would forgive the deferral, and he has expressed a desire to eliminate the payroll tax permanently. This move would be devastating for Social Security.
In the short term, not being hit with payroll taxes would help your personal finances. In the long term, it could be devastating for your retirement, as well as the retirement of your parents and grandparents. Do you think your parents (or grandparents) would be able to maintain their financial independence without the help of Social Security? Would you need to change your retirement plans if this valuable benefit went away or if you were forced to put off saving for your own retirement to help support your parents?
It was previously estimated that the Social Security trust fund would run out of money around 2034. This estimate was prior to the COVID-19 recession and Trump’s plan to eliminate payroll taxes. It is estimated that Trump’s plan to eliminate the payroll taxes would move the date of Social Security insolvency up to 2023.
Your vote in 2020 will likely affect the future of Social Security benefits. So please vote.