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Social Security COLA for 2021 Could Be Above Zero After All

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collage of Social Security cards in blue (Photo: Shutterstock)

Despite the dour outlook this spring, Social Security recipients could be seeing a slight increase in their benefits next year — if inflation continues at its current rate or increases over the next few months. Social Security cost of living adjustments (COLAs) are calculated by comparing a three-month average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter to the same period the year prior.

In May, during the early months of the COVID-19 pandemic and subsequent economic instability, policy analyst Mary Johnson of the advocacy group The Senior Citizens League ruled out an increase in the COLA, citing the plunge in oil prices. In July, she updated her forecast to a 1.1% increase. She will issue the last estimate for 2021, which will be based on the August CPI data, on Sept. 15.

A report from Seeking Alpha noted that the CPI-W index increased 1% in July 2020 compared with 12 months ago, meaning that, at this point, the COLA for 2021 should be 1%. Of course, that number could change depending on how much inflation fluctuates in August and September.

Seeking Alpha also noted that prices have increased for a host of items, including used cars and trucks and gasoline, from earlier this year — though prices for both categories are still well below last year’s highs. However, the publication noted that prices for medical care services and food currently exceed 2019 levels.

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Kiplinger is predicting a 1.2% increase in the COLA for 2021, noting that prices for certain items have rebounded from earlier in this year when the U.S. economy was first adjusting to life under the COVID-19 pandemic.

If that forecast comes to pass, it would be the lowest COLA increase since 2017, when benefits rose just 0.3%. The Social Security COLA was 1.6% in 2020 and 2.7% in 2019.

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