The Social Security Administration announced on Tuesday a 1.3% benefit increase to Social Security and Supplemental Security Income in 2021, affecting roughly 70 million people.
This year’s cost-of-living adjustment will increase the maximum earnings from $137,700 to $142,800. It will amount to about a $20-a-month increase for the average retiree.
The COLA is calculated “based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of the last year a COLA was determined to the third quarter of the current year,” according to the SSA website. Last year’s COLA increase was 1.6%.
Economic shutdowns, furloughs, and layoffs have reduced tax collections for Social Security, which was already in a precarious financial situation. In May, the University of Pennsylvania’s Wharton School released an updated report that speculated that Social Security could run out of funds four years earlier than previously expected, depending on the rate of the current financial recovery.
Before the economic effects of the coronavirus pandemic were felt, economists speculated that Social Security trust funds would run out of money by 2036. Now, they’re saying those funds could be depleted by 2032.
“We are looking at a period where there are growing inadequacies in Social Security benefits, particularly for people with lower-to-middle benefits,” said Mary Johnson of the Senior Citizen League.
Another factor influencing Social Security funds is President Trump’s payroll tax deferral that went into effect on Aug. 8. Though few, if any, businesses have taken advantage of the opportunity, it does affect a broad swath of the federal workforce. As it stands, those deferred taxes will come due next year, but Trump has “hint[ed] to reporters he had much bigger tax cuts in mind. Early in the year, he told an interviewer he wanted to tackle ‘entitlements,’ or benefit programs, in a second term,” according to the Associated Press.
