The annual cost-of-living adjustment (COLA) for benefits will be 1.3%, which is a small but significant increase for millions of beneficiaries. They’ll see a raise in their monthly payments beginning in January 2021. However, the benefits increase isn’t the only change coming next year, according to AARP’s October article entitled “Biggest Social Security Changes for 2021.” Some of the biggest changes affecting Social Security recipients in 2021, including the average monthly benefits in 2021 (+ difference from 2020):
- Retired worker: $1,543 (+$20)
- Retired couple: $2,596 (+$33)
- Widow or widower: $1,453 (+$19)
- Widow with two children: $3,001 (+$39)
- Disabled worker: $1,277 (+$16)
- Disabled worker w/ spouse, children: $2,224 (+$29)
- SSI for individual: $794 (+$11)
- SSI for couple: $1,191 (+$16)
The 1.3% COLA that starts in January was calculated based on the year-over-year rate of inflation. It’s the difference between the Consumer Price Index for Urban Wage Earners (CPI-W), a government measurement of prices typically paid for a basket of goods and services, in the third quarter of 2019 and the third quarter of 2020. The modest increase signals the relatively low rate of inflation over the past year. When there’s no change in the index, or if prices have fallen year over year, there’s no COLA.
For the average retired worker, the monthly Social Security benefit will go up by $20 to $1,543 in January from $1,523 this year. For the average retired couple who both collect benefits, the payment will rise by $33 to $2,596, up from $2,563, and for the average disabled worker, monthly benefits will increase by $16 to $1,277 from $1,261. The maximum Social Security check for a person retiring at full retirement age will rise to $3,148 a month in 2021 from $3,011 — an increase of $137.
The payroll tax that funds Social Security is set at 12.4% on eligible wages. Employees pay 6.2%, and employers pay the other half. Self-employed workers pay the whole 12.4%. The money paid in by today’s workers goes to cover current benefits, with any excess going into the Social Security trust fund.
A recent change in law states that the new Medicare premium will be less than previously projected, which preserves part of the COLA for most beneficiaries. Initially, higher emergency Medicare spending due to COVID-19 was expected to lead to very high Medicare premiums in 2021. Most beneficiaries would have seen their COLA wiped out by Part B premium increases, if the law hadn’t been changed.
Those who get Supplemental Security Income (SSI) that helps some individuals with little or no income meet basic living needs, will also see a 1.3% rise in their monthly benefits. For the average individual, that means $11 more a month, to $794 from $783. The average couple gets $16 more a month, to $1,191 from $1,175. SSI is funded by general tax revenue, not Social Security payroll taxes.
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Reference: AARP (Oct. 28, 2020) “Biggest Social Security Changes for 2021”
Suggested Key Terms: Disability, Social Security, Supplemental Security Income, Social Security Disability Insurance