The Social Security Administration announced recently that the COLA (cost-of-living adjustment) will increase 1.3 percent in 2021.
That means if you are collecting Social Security, your monthly payment will increase by that amount starting with this month’s benefits which are payable in January 2021. Because Jan. 1 is a holiday, that payment will actually come at the end of this month.
If you receive Social Security, you should have received a notice in November announcing the increase and then another earlier this month explaining how you can determine the exact amount of yours.
The COLA is determined by a specific formula using the consumer price index for urban wage earners and clerical workers called a CPI-W. The 1.3 percent increase is based on the CPI-W for the third quarter of 2019.
This system for determining COLA has been in use since 1975. Under this system, the highest COLA was 14.3 percent in 1980. The lowest was no increase in 2009, 2010 and 2015.
Prior to this method, Social Security benefit increases were determined by legislation.
Two other important pieces of information associated with the COLA relate to Medicare premiums and Supplemental Security Income (SSI) recipients and Medicare premiums.
If you receive SSI payments, you will see the same 1.3 percent increase in monthly benefits.
And, while in the past, it has often been true that any COLA increase gets eaten up by the jump in Medicare premiums, this year is a little different. But because of a change in the law governing Medicare, increases will not be as much as previously anticipated. As a result, at least part of the COLA will be preserved.