This is the time of year when leaves fall and the Social Security Administration announces the annual cost of living adjustment (COLA) for people receiving Social Security.
For 2020 the increase will be 1.6 percent, or about $24 per month, raising the average monthly individual payout to $1503. It will boost the maximum retirement benefit by $150 to $3011 per month. The average and maximum Social Security benefits figures don’t include delayed retirement credits, which reward Social Security recipients who wait to take Social Security beyond their full retirement age (FRA).
At the same time, the amount of income a worker will have to pay Social Security taxes on also goes up. For 2020, the wage base will increase from $132,900 to $137,700.
Social Security benefits increase automatically if the CPI-W, which measures price inflation for urban workers, increases in the third quarter (July, August, and September) of the current year over the third quarter of the previous year.
The 2020 COLA of 1.6 percent is the smallest increase in 3 years, when the cost of living adjustment was only 0.3 percent, but is slightly higher than the 1.4 percent average over the last 10 years.
According to Jo Ann Jenkins, CEO of AARP, Social Security is the largest source of retirement income for most retirees. And while more money is always good, the annual Social Security COLA typically isn’t enough to offset a senior’s increases in the cost of housing, food, transportation, healthcare, and prescription drugs.
And that’s not the only problem. Social Security has funding issues. The 2019 annual report from the Social Security and Medicare Board of Trustees said trust fund reserves that help pay Social Security benefits will be gone by 2035 unless Congress takes action, and if nothing is done Social Security will be able to pay only 80% of what is being promised to workers today.