Social Security recipients will get a raise in 2021 – but for the average retiree, it’s only an extra $ 20 per month.
The Social Security Agency announced a 1.3% cost of living adjustment that will take effect in January 2021. This will be the lowest COLA since 2017, when benefits only increased 0.3%.
For retirees, the average monthly benefit increases from $ 1,523 to $ 1,543. Disabled workers will increase their benefits from an average of $ 1,261 to $ 1,277.
Why is the COLA so low?
For starters, COLAs are never what you would call generous. From 2010 to 2019, COLAs averaged just 1.52%. The highest increase in the last 10 years was recorded in January 2019 when Social security benefits increased by 2.8%. In 2015, the recipients did not receive any pay rise.
The COLA 2021 is low because inflation is low, at least by the official definition. The increase in social security is based on price changes measured by the urban wage earner and office worker consumer price index (CPI-W). The CPI-W surveys households to measure price changes for a basket of goods and services. Social Security compares the CPI-W for the third quarter of the current year (2020) with the CPI-W for the same period of the previous year (2019) to determine the COLA for the next year.
However, this is a flawed way of measuring the real cost to retirees. The CPI-W asks urban workers what they pay for a basket of goods and services. Households in which nobody is employed, i.e. households, are excluded. H. Households Consisting of Only Retirees.
A typical city worker has very different spending patterns than a senior. For example, retirees spend a far greater percentage of their income on health care than someone who is still working. However, COLAs have not kept pace with rising health care costs.
According to a May 2020 report by the Senior leagueSocial security benefits increased by 53% between January 2000 and January 2020. Over the same period, senior prescription drug prices and Medicare Part B premiums rose 252% and 218%, respectively.
What if your COLA is insufficient for social security?
If Social Security is your only source of income, the rising costs associated with measly COLAs are no doubt stinging year after year. But the low COLA this year will be difficult even for seniors with other sources of income.
Interest rates are close to zero and are expected to stay low through 2023. Low interest rates are good for businesses and borrowers, but bad for retirees who like to rely on fixed interest payments from sources tie up and CDs.
If this year’s COLA in 2021 isn’t enough for you, consider the following options.
- Apply for a Medicare savings program. If you have limited income and financial resources, you may be eligible for one Medicare savings program that provides government support for your premiums. If you are eligible for any of these programs, you will often automatically receive additional help paying for Medicare drug insurance.
- Find additional benefits that you may be entitled to. Go to profit.gov and fill out a questionnaire to see if you are eligible for other forms of help. For example, you can qualify for SNAP benefits to help out with groceries or an energy aid program.
- Practice extreme cost cutting. We get it: if Social Security is your main source of income, don’t eat lobster and caviar. However, you may need to cut your budget even further, such as going to a pantry to save groceries or giving up your car.
- Work part time. Working just a few hours a week can make a big difference when you have a Social Security income. More and more companies are enabling employees to work remotely. So check out ours Job-from-home job portal for opportunities. However, be aware that if you work and receive benefits before full retirement age, your benefits may be reduced by as much as $ 1 for every $ 2 you earn over $ 18,960 in 2021.
- Consider a reverse mortgage. If you own your home and have significant equity, a reverse mortgage may be worth considering. You are still responsible for property taxes and home insurance, as well as all homeowners association fees. So this is only an option if you are sure you can afford the cost.
A warning word for future social security recipients
If you haven’t started earning benefits already, take a few minutes to use Social Security Administration Benefit estimator to see how much you are eligible for. Well worth that recent history of the COLAs to see how little these benefits will increase each year.
Does that monthly payment seem enough to survive? No I would not have thought that.
That is why it is important that you save for your own retirement by contributing to a 401 (k) plan if your employer offers and / or financing a Roth IRA or traditional IRA. Social security will only replace around 38% of the income of a worker who earns an average wage and retires at 65 in 2020. Retirees can also expect Medicare premiums and healthcare costs to consume more of their budget year after year.
With social security, it’s worth the wait. Your benefits will be reduced by five-ninths of 1% for every month you apply for before full retirement age. If you were born in 1960 or later, your lifetime benefits will be one-third lower if you use them at age 62 than if you waited until you were 67. For every year that you delay past full retirement age, you will receive an additional 8% benefit up to the age of 70.
Granted, not everyone can wait until they are 70 to receive social security benefits. Many older workers are forced to retire early Because of circumstances they cannot control, such as medical problems, job loss, or the illness of a spouse. But waiting as long as possible is perhaps best to make sure your retirement social security checks go far enough.
Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. She writes the Dear Penny personal financial advisory column. Send your tricky money questions to [email protected].
This article originally appeared on www.thepennyhoarder.com