Social Security Announces 1.3% COLA For 2021, One of Lowest Ever Paid

Social Security Announces 1.3% COLA For 2021, One of Lowest Ever Paid

Social Security recipients will receive an annual inflation boost of just 1.3% in 2021.  The increase is so small, it’s one of the lowest on record.  The 2021 cost of living adjustment (COLA) will increase the average retiree $1,523 benefit by about $20 per month to $1,543.  That increase is expected to be significantly offset, or even completely consumed, by rising Medicare Part B premiums.

The COLA was just 1.6% in 2020 and, over the past 11 years, COLAs have been at unprecedented lows, averaging just 1.4% since 2010.  That’s less than half the 3% that COLAs averaged from 1990 to 2009.

This minimal growth in Social Security benefits has had the biggest financial impact on the Social Security income of the group of the older retirees who retired in 2009 or before.  That group has seen little increase in net Social Security benefits for 11 years.  The flat growth in benefits means that younger retirees since 2009 have wound up receiving less Social Security income than they may otherwise have been counting on for future benefits, because the level of their initial benefits is not growing.

Why is the COLA so low?  A major reason has to do with whose “market basket” the government is using to measure inflation and calculate the annual adjustment.  Under current law, that market basket belongs to younger working adults under the age of 62 who aren’t retired.  The Social Security COLA is determined by the percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The CPI-W gives greater weight (or mathematical importance) to consumer items purchased more frequently by younger people like gasoline and electronics.  Conversely, the CPI-W gives less importance to housing and medical expenses, two expenditure categories which form the biggest share of spending in households of older consumers.  Those two categories have increased rapidly over the past decade but are not accurately reflected in COLAs.  If that isn’t enough, the COLA doesn’t include increases to Medicare Part B premiums at all.  Research for TSCL has found that Medicare Part B premiums and out-of-pocket spending on prescription drugs are the two fastest growing costs in retirement.

TSCL supports several bills that would address the growing problem of inadequate Social Security benefit growth in several ways:

  1. Enact legislation to guarantee that the COLA is never lower than 3%.
  2. Provide a one-time boost to all retirees and tie future COLAs to an index that more fairly represents prices experienced by older Americans, such as the Consumer Price Index for the Elderly (CPI-E).
  3. Adjust the income thresholds that subject Social Security benefits to taxation so that Social Security recipients can keep more of their benefits.


What do you think of the 2021 COLA?  Send us your comments at