2021 COLA: good news and bad news for Social Security beneficiaries

Reeling from Coronavirus’ debut on our shores, early predictions about next year’s Social Security Cost of Living Adjustment (COLA) raise looked abysmal.

To add insult to injury during the initial economic chaos of our spring pandemic lockdowns, financial analysts were confident there would be no chance of a COLA in 2021. On top of intense economic pressure, shortages, closures, and the general anxiety of venturing out-of-doors with a deadly virus running wild, seniors also had to brace themselves for tough times into the next year.

But why, when shortages and price-gouging seemed to be driving costs up for everyday people, would analysts be certain about 0% COLA in 2021?

One word: oil.

While we were all staying home, fuel prices collapsed. With a significant portion of the workforce unemployed or working remotely, most of us relying on the internet to do our shopping and tasks, and absolutely no one wanting to fly anywhere, the demand for oil disappeared. Oil contract futures closed in the negative. At one point, oil speculators were even paying people to buy their oil. It was unprecedented.

Oil prices falling caused an overall decrease in inflation—and a big one, at that. Even though the prices of things like hand soap, counter spray, and paper towels surged with increased demand and decreased supply, the prices of those commodities couldn’t touch how cheap gas had become. Thus, we saw a real life example of how our current COLA calculation formula can fail seniors.

COLAs are calculated using a formula called the CPI-W, or the Consumer Price Index for Urban Wage Earners and Clerical Workers. It’s a formula that uses a “market basket of goods” determined by workers’ shopping habits to get a sense of rising prices. The higher the cost of that market basket, the higher the COLA gets to account for it.

The problem is the “W” in “CPI-W.” Workers spend their money much differently than retirees. And one of the biggest differences between workers and retirees is how much they spend on gas. For commuters, gas is one of the leading weekly expenses. For retirees? Not so much.

Fuel prices factor heavily into the CPI-W’s market basket. Although seniors and young people share the burden of rising grocery goods prices, seniors don’t use gasoline at the rate of most workers. But seniors end up paying the price when they receive their Social Security check. If fuel prices are low, it causes the COLA to plummet.

But as we begin our slow, cautious journey toward economic recovery—and more importantly, as the prices of other necessary commodities remain high—it’s starting to look like our chances of seeing any COLA at all in 2021 have improved.

The Senior Citizens’ League has recently estimated next year’s COLA will be around 1.3%. While other groups are less optimistic about that number, TSCL is considered a reliable source for COLA predictions.

Whether TSCL’s projections are accurate, or other estimates, like the AARP’s estimate of between 0.5% and 1% are correct, the good news is seniors won’t be left completely out in the cold. Compared to April and May’s 0% projections, any amount of COLA is 100% better.

The bad news, however, is 1.3% would be one of the lowest COLA raises in Social Security history. Only five times since the 70s has the COLA been 1.3% or lower, including the three times we didn’t receive any COLA at all.

Though the rising prices of grocery goods are largely to thank for improving our chances of seeing a COLA, those same prices are the cause of seniors continuing to lose buying power during a time when they are especially vulnerable. As long as we use the CPI-W to calculate COLA raises for seniors, situations like these will continue to be a double-edged sword.

But with the way things have been lately, we’d prefer to stay focused on the positives: despite early estimations, it appears we WILL be receiving some kind of Social Security COLA boost next year. The only question is, how much will it be?

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