COLA for 2020 May Be Zero. No, This is Not Normal!

COLA for 2020 May Be Zero. No, This is Not Normal!

At 2.8%, the annual cost-of-living adjustment (COLA) that Social Security beneficiaries received in 2019 was the highest in seven years.  The average monthly retiree benefit of $1,425 increased by almost $40, but since October of last year, consumer price index data indicate that growth in inflation has stalled.  In fact, if the current trend continues, it suggests the COLA payable in 2020 could be zero, according to projections by Advisor editor, and COLA researcher, Mary Johnson.

Consumer price index data show that the rate of inflation has changed significantly over the past decade, and has yet to return to the average rate during the decade prior to the 2010 Great Recession.  From 1999 to 2008, COLAs averaged 3%.  Since 2010, however, the COLA, which is tied to the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), has averaged just 1.4%.  Since that year, inflation has been so low that there was no COLA payable three times — in 2010, 2011, and 2016.  In 2017, inflation was almost zero at just 0.3 percentage point.  This is not normal, and research on the costs experienced by older Americans indicates the COLA often doesn’t reflect inflation that retirees actually experience.

An ongoing study of the buying power of Social Security benefits, a special project of TSCL, has found that, since 2000, COLAs increased Social Security benefits by a total of 46%, but the typical expenses of older households grew more than twice as fast — 96.3%.  For every $100 a retired household spent in 2000, the same household can only buy about $66 worth of goods and services today.

The COLA as currently calculated is failing to protect the buying power of the beneficiaries for whom it is intended.  TSCL supports legislation, the 3% COLA Act, that would ensure a more fair and adequate COLA two ways.  It would base the annual boost on an index that more accurately reflects of the costs of older Americans — the Consumer Price Index for the Elderly (CPI-E).  In addition, the legislation would require an annual minimum COLA of no less than 3%.

Such a minimum guarantee would go a long way to protect beneficiaries in years when there is no COLA.  Had such a 3% minimum COLA guarantee been in effect since 2009, the average benefit of $1,075 in 2009 would be $215 per month/ $2,580 year higher today — about 18%.  A minimum COLA would also eliminate the problem of benefits remaining flat for years, at a time during periods when Medicare Part B premiums increase more than the COLA raises benefits.

There are still several months of data still to come in, and our COLA estimate could change.  The 2020 COLA will be announced later this fall.  Want to learn more about how the COLA is calculated?  The formula can be found here —