The 2021 Social Security Inflation Increase:What it Means to Retirees
The Social Security Administration recently announced next year's cost of living adjustment (COLA) for its 64 million beneficiaries. The increase will be 1.3% starting in January of 2021. This is a slight decrease from the 2020 COLA which was 1.6%.
What is the actual inflation rate? It depends on the way you measure inflation. The Labor Department reported on October 13, 2020 that the annual inflation rate for the United States was 1.4% for the 12 months ending September 2020. But, as the sticker on the driver's side of the window of the brand-new car says, "your mileage may vary."
For those who are retired and receiving Social Security benefits, inflation is a particular concern. Inflation erodes purchasing power and over time the impact can be significant. For example, 25 years ago, the cost of a first-class postage stamp was 32 cents. Today that stamp costs 55 cents.
Academic research tells us that inflation does not affect retirees in a uniform manner. It depends on your unique basket of goods and services. For example, for the above-referenced past 12 months, the cost of food rose by 3.9%, energy dropped by 7.7% and medical care rose by 4.9%.
The bottom line is that you need a retirement plan that incorporates inflation.
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