High chances of a lower COLA in 2021
The immediate effect most specialists envisage that the coronavirus might have on Social Security is on its cost-of-living adjustment, also known as COLA.
In simple terms, Social Security’s COLA is the increase from one year to the next in Social Security benefits to counteract inflation. It is designed to maintain benefits at the same level as the rising price of goods and services.
The COLA is calculated by comparing the average third-quarter reading (July – September) of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the current year to the average third-quarter reading of the CPI-W in the previous year. If there’s a measurable increase (at least 0.1 percent) from one year to the next, benefits go up as well and rounded to the nearest tenth of a percent. If there is a decline in CPI-W reading from year to year, beneficiaries will not see any increase in their benefit payment in the upcoming year.
The CPI-W can be affected by various spending categories such as shelter, medical care, food costs, energy prices and the like. With the increased inflation in recent months as well as the lower energy prices, Social Security beneficiaries might have a low or nonexistent COLA in 2021.
