Social Security COLA for 2021 Could Be Zero: Report

The likelihood that seniors will see no cost-of-living adjustment in 2021 is high, according to the Senior Citizens League.

The recent plunge in oil prices has "all but wiped out the prospect of a Social Security cost-of-living adjustment (COLA) for next year," according to Mary Johnson, a policy analyst with the group.

The inflation index on which COLAs are based, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), increased 0.1% in April from a year ago and fell 0.7%, without seasonal adjustments, from March, according to the Bureau of Labor Statistics.

Based on CPI data through April, Johnson estimates that the COLA for 2020 will be zero. This estimate could change, though, since five months of data have yet to be collected before the Social Security Administration makes its October announcement about the COLA for 2021.

The COLA for 2020 was 1.6%, "already low to begin with," Johnson noted. In addition, the buying power of Social Security has fallen 30% since 2000, according to the group's latest study, released earlier in May.

The Senior Citizens League is a lobbying group that argues that the CPI-W does not accurately reflect the spending patterns of seniors, including higher health care spending, and that COLAs should instead be tied to the Consumer Price Index for the Elderly.

While the group's research found a 3 percentage point gain in the buying power of Social Security benefits over 2019, lower prices signal deflation. And that "means a lower cost-of-living adjustment (COLA) is on the way," Johnson added.

One academic specialist in COLAs and Social Security believes that the coronavirus pandemic could lead to a zero COLA adjustment next year.

COVID-19 "has potential implications for Social Security's COLA in 2021," said Alicia Munnell of the Center for Retirement Research at Boston College in a recent report, "since that adjustment will be determined by comparing the CPI-W [for wage earners] in the third quarter of 2020 with that in the third quarter of 2019."

"If the CPI-W does not increase over that time, the Social Security Administration cannot provide any COLA — the fourth time that such an event would have occurred … since 1975," Munnell explained.

The absence of a COLA might not severely impact Social Security beneficiaries, she adds, since "in theory the cost of goods they purchase also have not increased in price." However, Munnell points out, "substantial debate surrounds the appropriate [price] index for retirees."

Historical Trends

Between January 2000 and January 2020, Social Security COLAs increased Social Security benefits by 53%. However, the cost of goods and services bought by most retirees increased nearly twice as much — 99.3%, according to the advocacy group.

Higher prices for Medicare premiums and housing and homeowner's insurance were particularly significant.

In its recent survey, the Senior Citizens League finds that nearly 30% of respondents spent more than $750 per month on Medicare and other health care expenses.

In 2020, the average Social Security benefit is $1,460. It grew $23.40 per month from last year.

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