Calculating Your Social Security Cost of Living (COLA) Increase for 2020
In California and across the US it is estimated that 62% of retired workers rely on Social Security benefits for half or more of their income. And 8.5 million disabled workers and their families receive monthly disability benefits from Social Security – with 117,000 spouses and 1.5 million children of disabled workers relying on these benefits.
Every year the Social Security Administration adjusts the amount of Social Security benefits to keep pace with inflation. This adjustment applies to both Social Security retirement and disability benefits. This increase in monthly Social Security benefits is called a “Cost of Living Adjustment” or COLA.
How Social Security Calculates the COLA Increase
Since 1975, the SSA has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the COLA increase. If the third quarter of the current year (July through September) is compared higher than the previous year, then Social Security beneficiaries receive an increase in benefits equal to the percentage increase, rounded to the nearest tenth of a percent.
In the rare years that the country is experiencing “deflation” – and the CPI-W reading declines from one year to the next – benefits remain the same and are neither increased nor decreased. This has only happened times – in 2010, 2011, and 2016 – since Social Security started using the CPI-W to calculate COLA increases.
Amount of 2020 Social Security COLA Increase
The 2019 COLA (cost-of-living adjustment) for Social Security benefits resulted in a relatively large increase of 2.8%.
However, The Bureau of Labor and Statistics’ CPI-W inflation report for third quarter of 2019 only showed an increase in cost of living of 1.6% over the same quarter in 2018.
Here’s the specifics of that report:
2018 CPI-W’s third-quarter readings
2019 CPI-W’s third-quarter readings
So, in 2020, Social Security beneficiaries will be receiving a 1.6% cost-of-living increase. This is about average for the rate of annual increases in Social Security benefits over the past decade.
Calculating the Dollar Amount of Your 2020 Social Security COLA Increase
The 1.6% COLA increase will be about $24/month for the average retired worker, and about a $20 increase per month for the average disabled worker in Social Security Disability Benefits.
You can calculate your benefit increase by multiplying your current benefit amount by .016. Then add the number you get to your current benefit.
The average benefit was 1,470/ month in 2019. Here’s an example of how to calculate the 1.6% COLA increase.
$1,470 (2019 benefit) x .016 (COLA) = $23.52 (increase)
$1,470 (2019 benefit) + $23.52 (increase) = $1493.72 (2020 benefit)
Does Social Security COLA Really Increase Keep Up with Inflation?
While it is good news that Social Security benefits are going to increase in 2020, it’s important to note that in fact the COLA has regularly failed to keep up with the actual inflation rates.
The Senior Citizens League estimates that the purchasing power of Social Security dollars for retirees has actually fallen by 33% since 2000. In other words, what retired workers could buy for $67 in Social Security income in 2000 will now cost $100 for those same goods and services.
Experts suggest that the CPI-W isn’t effective at measuring the costs of living that really affect retired workers who spend their money very differently than the urban and clerical workers used to calculate the CPI-W. For example, the CPI-W includes spending on such as education, apparel, and other factors less important to seniors while underweighting senior expenses, such as the cost of medical care, home assistance, and senior housing.
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