The Social Security Administration announced that the 2021 cost-of-living-adjustment for 2021 will be 1.3%. This will lead to a $20 increase per month to the average retired workers social security check in 2021 (see their fact sheet here).
The 1.3% increase is based on the CPI-W, or the consumer price index of urban wage earners, as it has been for decades. There has been discussions over the past few years about changing the way that the SSA calculates the annual COLA. Some have advocated using the chained-CPI, as was implemented into the tax code in 2017 to help mitigate the program from running out of it’s reserves as it would decrease the annual COLA by 0.1%-0.2% per year. While others have advocated for using the CPI-E (E for elderly instead of W for wage earner), an index that takes into account the elder specific costs such as Medicare premium increases and other goods that increase in price faster than inflation and would result in COLA’s being 0.1%-0.2% higher than CPI-W. While this would be ideal, as the point of the annual COLA is to help benefits keep pace with inflation, it may cause an already stretched program to run out of reserves even faster.