Retiree COLA Set at 1.3% Next Year, Prompting Calls for Change
Organization calls on Congress to shift the metric upon which annual cost of living adjustments for Social Security and federal retirement benefits are based from the general price of goods to one that takes into account spending by the elderly.
The Social Security Administration announced Tuesday that in 2021, Social Security recipients and all retired federal employees will receive a 1.3% cost of living adjustment, sparking calls for a change to how the annual increase is calculated.
The annual cost of living adjustment for Social Security, which also serves as the basis for increases in federal retiree annuities, is calculated using the annual change in the consumer price index for workers—CPI-W—for the third quarter of the calendar year. For 2021, that change clocked in at 1.3%, which marks a decrease from 1.6% in 2020, 2.8% in 2019, and 2% in 2018.
The Civil Service Retirement System simply adopts the Social Security COLA for its participants, but things are more complicated when calculating the increase in annuities under the Federal Employees Retirement System. If the change in CPI-W is 2% or less, like this year, the increase is equal to that figure, while if the change is between 2% and 3%, the adjustment is rounded down to 2%. And if the change in the CPI-W is greater than 3%, the increase is 1% less than the total increase.
Officials at the National Active and Retired Federal Employees Association said the decrease in annual cost of living adjustments shows that the current method for calculating the adjustment does not align with the reality of rising prices that retired employees face. NARFE has advocated for a switch to the consumer price index for the elderly—CPI-E—to calculate increases in Social Security and other retirement annuities. On average, the CPI-E has shown that prices increase for seniors by at least 0.2% more than for those included in the CPI-W.
“The 2021 COLA of 1.3%, the lowest in four years, is an affront to the millions of federal retires who devoted their working lives to serving the public,” NARFE National President Ken Thomas said. “This insufficient COLA fails to keep up with inflation experienced by seniors, further eroding their purchasing power. The cost of health care continues to rise faster than other goods. Seniors spend more on health care than any other segment of the population—just as the nation struggles to contain a virus that poses particular danger to older Americans. And federal retirees will almost certainly be further burdened by significantly higher Federal Employees Health Benefits Program premiums, which have yet to be announced for 2021.”
In a questionnaire published by NARFE last month, Democratic presidential candidate Joe Biden indicated that he would support shifting the basis of Social Security and federal retirement cost of living adjustments from the current CPI-W to the CPI-E.
“We must make Social Security more generous and increase its benefits so that today’s and future retirees enjoy the dignified retirement they’ve earned,” Biden wrote. “That means using the CPI-E to determine the cost-of-living increase.”
Trump’s campaign declined to respond to the survey, saying they are not participating in any questionnaires this year.