2021 COLA Announced
UPDATED: October 13, 2020
The 2021 cost-of-living adjustment (COLA) will be 1.3 percent for Civil Service Retirement System (CSRS) annuities, Federal Employees Retirement System (FERS) annuities and Social Security benefits.
This is a lower federal retiree COLA than last year when CSRS and FERS retirees received 1.6 percent. (See also: COLA history below). According to the Social Security Administration, the 2021 COLA increase would represent about $20 in average monthly Social Security benefits for all retired workers.
“People who have been receiving benefits for 12 years or longer have experienced an unprecedented series of extremely low cost-of-living adjustments (COLAs),” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL), a nonpartisan group representing seniors.
“What’s more those inflation adjustments do not account for rapidly rising Medicare Part B premiums that are increasing several times faster than the COLA,” TSCL said in a press statement today. “The situation is causing those with the lower Social Security benefits to see little growth in their net Social Security income after deduction of the Part B premium.”
SEE ALSO: A Low COLA and Higher Medical Costs Could Mean Double Whammy for FEHB and Medicare Premiums
|
Federal Retiree COLA History |
||
|
Year |
CSRS COLA |
FERS COLA |
|
2021 |
1.3 |
1.3 |
|
2020 |
1.6 |
1.6 |
|
2019 |
2.8 |
2.0 |
|
2018 |
2.0 |
2.0 |
|
2017 |
0.3 |
0.3 |
|
2016 |
0 |
0 |
|
2015 |
1.7 |
1.7 |
|
2014 |
1.5 |
1.5 |
|
2013 |
1.7 |
1.7 |
|
2012 |
3.6 |
2.6 |
|
2011 |
0 |
0 |
|
2010 |
0 |
0 |
|
2009 |
5.8 |
4.8 |
|
2008 |
2.3 |
2.0 |
|
2007 |
3.3 |
2.3 |
|
2006 |
4.1 |
3.1 |
|
2005 |
2.7 |
2.0 |
|
2004 |
2.1 |
2.0 |
|
2003 |
1.4 |
1.4 |
|
2002 |
2.6 |
2.0 |
|
2001 |
3.5 |
2.5 |
|
2000 |
2.4 |
2.0 |
|
1999 |
1.3 |
1.3 |
The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2020. (Note: some people receive both Social Security and SSI benefits).
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index (CPI-W) as determined by the Department of Labor’s Bureau of Labor Statistics (BLS).
How is the difference between the CSRS COLA and FERS COLA determined?
The following table summarizes the FERS COLA in relation to the CSRS COLA:
|
If the CSRS COLA is… |
Then the FERS COLA is… |
|
Up to 2.0% 2.0% to 3.0% Above 3.0% |
Same as CSRS COLA 2.0% CSRS COLA minus 1.0% |
How is a COLA calculated?
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.
SEE ALSO:
- Federal Employee Pay Raises vs. Retiree COLAs
- Guide to Federal Retiree COLAs: What Are They and How Are They Calculated?
NARFE Urges Use of CPI-E to Calculate Federal Retiree COLA
“NARFE continues to support strong COLAs based on fair assessments of increases in consumer prices to protect the value of federal annuities from inflation,” NARFE writes on their website.
“NARFE specifically supports the Fair COLA for Seniors Act, H.R. 1553, which would switch to the Consumer Price Index for the Elderly (CPI-E) and result in higher COLAs. NARFE also opposes a switch to the Chained CPI, which would result in lower COLAs. Finally, NARFE supports the Equal COLA Act, H.R. 1254, which would provide FERS annuitants with a full COLA, equal to the change in consumer prices, regardless of the percentage, as is provided to CSRS annuitants and Social Security beneficiaries.”
Sept. 15, 2020
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.4 percent over the last 12 months to an index level of 253.597 (1982-84=100). according to the Bureau of Labor Statistics.
For the month of August 2020, the index rose 0.4 percent prior to seasonal adjustment. The chart below indicates the latest trend toward determining the 2021 COLA:
Trend Toward 2021 COLA
(FERS / CSRS / Social Security)
How was this calculated?
Each year’s COLA is determined by comparing the change in the CPI-W from year to year, based on the average of the third-quarter months of July, August and September. The average CPI-W for the third quarter of 2019 was 250.200
The amount of a COLA is determined by the percent change in the base quarter price index from the previous year to the year in which the COLA is to become effective (the final number is adjusted to nearest 1/10 of 1 percent).
For August 2020, the trend toward a 2021 COLA is:
(253.597 – 250.200) / 250.200 x 100 = 1.357 (adjusted to the nearest 1/10 of 1 percent = 1.4%)
The Consumer Price Index for September 2020 is scheduled to be released on Tuesday, October 13, 2020 at 8:30 a.m. (ET).
The official 2021 COLA will be released by the Social Security Administration (SSA) in mid-October. The SSA will calculate the percent change between average prices in the third quarter of the current year (ending on Sept. 30) with the third quarter of the previous year.