The Social Security Administration announced a 1.6% cost-of-living adjustment in benefits beginning January 2020. The 2020 COLA is the smallest increase since 2017, when it was 0.3%.
For the average Social Security recipient, collecting $1,461 a month, the increase amounts to about $23.
In addition to next year’s COLA, the Social Security Administration announced a new maximum for earnings subject to the Social Security tax and new limits for the amount of earnings of recipients who haven’t reached full retirement age that would not be subject to benefit deductions.
The maximum amount of earnings subject to the Social Security tax increases to $137,700 in 2020, up 3.6% from $132,900 this year.
The earnings limit for recipients who have not reached full retirement age will be $18,240 in 2020, above which $1 in benefits will be deducted for every $2 earned. For recipients turning 66 in 2020, however, the earnings limit will be $48,600 and $1 will be deducted for each $3 earned until the month the beneficiary turns 66.
The Senior Citizens League says the 1.6% COLA for 2020, which is sharply below this year’s 2.8%, continues a “worrisome trend in which COLAs have averaged just 1.4% from 2000 to 2010,” down from 3% average from 2000 to 2009.
Mary Johnson, the league’s Social Security policy analyst, notes that “people who have been retired for 10 years or longer have absorbed the full financial blow of low COLA growth.”
Her analysis found that the average Social Security beneficiary receiving $1,075 per month in 2009 collected $15,258 less from 2010 to 2019 than they would have if the COLA has averaged 3%, the typical adjustment of the previous decade. By the end of the 10 years, that recipient’s benefit would be $223 less per month.
The league supports legislation that would require a minimum COLA of 3%, even in years when inflation falls below that amount. “Strengthening the COLA,” Johnson says, “would help slow the drain of retirement savings and help keep older Americans out of poverty.”
The impact of the 1.6% Social Security COLA on retirees will depend in part on the increase in Medicare Part B premium, which is expected to be announced any day now. This year, when the Social Security COLA increased 2.8% from 2018, the Medicare Part B premium, which pays for outpatient medical services and supplies such as doctor visits and medical equipment, rose only $1.50, leaving beneficiaries with most of the COLA in hand.
Next year, when the COLA increase will much smaller, at about $23 a month for the average Social Security recipient, the Medicare Part B premium increase is expected to increase $8.80 per month, wiping out nearly 40% of the Social Security COLA.
Given these expectations, William Meyer, CEO Social Security Solutions, which provides advice about claiming strategies for impending retirees, recommends that “every retiree should create a detailed budget to understand their spending in 2020. It’s clear that the Social Security COLA a will not keep up with inflation for a senior.”
The Social Security COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) between the third quarter of 2018 and third quarter of 2019. When the government reported the September CPI Thursday morning — which was unchanged from August — it had all the data needed to report the 2020 COLA.