2021 Cost of Living Adjustments

The Social Security Administration (SSA) announced in October that there would be a 1.3% increase in Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) benefits for over 70 million beneficiaries in 2021.

This announcement follows a 1.3% increase in the cost-of-living adjustment, or COLA, which is an annual calculation that adjusts benefits to ensure that they keep up with inflation. As a result of the 1.3% increase in the 2020 COLA, Social Security benefits will rise by 1.3% in December 2020 for 64 million beneficiaries and will be payable by January 2021.

Additionally, the COLA impacts the maximum amount of personal earnings that are subject to the Social Security tax, which has increased from $137,700 annually to $142,800.

Impact on Medicare Patients

For those receiving Medicare, Social Security benefits will not be calculated until after the Medicare premium amounts for 2021 are announced. As a result, Medicare beneficiaries were likely notified as early as December of any changes.

Calculation of COLA

COLA was enacted as a provision in the 1972 Social Security Amendments to allow for automatic adjustments. This helps keep SSDI and SSI payments in line with inflation so that it does not drain value from the benefits and to maintain purchasing power for recipients.

The annual adjustment is based on the percentage increase of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is calculated monthly by the Department of Labor’s Bureau of Labor Statistics, and the COLA is the percentage change between the third quarter average for the current year and the third quarter average for the prior year.