Just as we forecast, the Social Security cost-of-living adjustment (COLA) for 2020 will be considerably lower than the 2.8 percent COLA received this year. The Social Security Administration recently announced that the 2020 COLA will be 1.6 %. That would raise an average retiree benefit of $1,460 by about $23.40 per month — far less than $40.90 received in 2019.
The 1.6% COLA is the lowest since 2017, when the annual boost was just 0.3% and in 2016 there was no COLA at all. Over the past decade, consumer price inflation has been at unprecedented lows. COLAs averaged just 1.4%, less than half the 3% they averaged during the previous decade from 2000 to 2009.
This is having a major impact on the lifetime Social Security income and standard of living of retirees, particularly those who retired prior to 2010. Social Security benefits are about 17.5 % lower today than they would have been if inflation had averaged the more typical 3% over the same period. Over ten years that’s about $17,299 less in retirement income for someone with average benefits. “That’s like losing an entire year’s worth of Social Security income,” notes TSCL’s Executive Director, Shannon Benton.
Even more troubling, because low COLAs compound over time, this loss of income due to low COLAs grows deeper as beneficiaries age. This has not gone unnoticed by those who depend on these annual adjustments. Many Social Security recipients tell TSCL that their standard-of-living has declined.
When actual costs climb faster than Social Security benefits the purchasing power of benefits doesn’t go as far. A study authored by Advisor editor Mary Johnson has found that Social Security benefits have lost a stunning one third, (33 percent) of buying power since 2000.
In 2000 the average monthly Social Security benefit was $816. That benefit grew to $1,226.60 by 2019 due to COLA increases. But because retiree costs are rising so much more quickly, the study found that this amount of benefits would need to have increased by $407.90 more, to $1,634.50 just to maintain the same level of buying power as in 2000.
To protect the buying power of Social Security benefits, The Senior Citizens League supports three approaches to strengthen benefits:
- Calculate COLAs based on the consumer price index that better reflects the spending patterns of retirees by tying the calculation to the Consumer Price Index for the Elderly (CPI-E).
- Provide a modest boost in monthly benefits to retirees to make up for years when no COLA or only a negligible COLA was payable.
- Guarantee a minimum COLA of no less than 3 percent.
To learn more and to send us your comments, visit www.SeniorsLeague.org.