On October 13, the Social Security Administration announced that the cost-of-living adjustment (COLA) for 2021 will be 1.3%, which amounts to a modest $20 a month increase for the average retired worker. While the COLA is designed to increase in step with inflation and the cost of living, the increase as it is currently calculated does not necessarily reflect the financial needs of people who are receiving Social Security benefits. This is especially true in times of great economic upheaval, such as during a pandemic.

Currently, the COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index has been criticized for undermeasuring rising costs in some of the categories that make up the bulk of spending for seniors and people with disabilities, especially medical and prescription costs.

Some years, there is uncertainty about how the COLA will interact with any increases in the Medicare Part B premium. If a beneficiary does not see enough of an increase in their Social Security benefit to cover the increase in the Medicare premium, a rule called the “hold harmless provision” kicks in. For those who are subject to it, this policy prevents their Social Security benefit from going down from one year to the next as a result of Medicare premium increases.

Congress recently took the unusual step of capping the growth of the Medicare Part B premium for 2021 because of fears that the premium would see a sharp increase while the COLA remained relatively small. As a result, the standard Medicare Part B premium next year will be held at current levels, plus 25% of the difference between the 2020 amount and a preliminary amount for 2021. It is unclear if this preemptive action was necessary since the official Medicare premium numbers have not yet been announced. They are expected later this fall.

Because the COLA is a percentage increase, the dollar amounts reported are only  estimates based on average benefits. We encourage beneficiaries to look at their personalized Social Security statement for information about their benefit and, when announced, Medicare premium amounts. Social Security and Supplemental Security Income beneficiaries are normally notified by mail in early December about their benefit amount and premium costs for the coming year. Most people who receive Social Security payments can choose to use a Social Security account to view their COLA notice online.

Read more about the COLA for 2021.

Read more about the legislative changes that will affect Medicare premiums.

Create or use a Social Security online account.