Social Security benefits should rise around 3% next January, up from the increase of 1.3% seen this year, according to an early cost of living adjustment (COLA) calculation by the Kiplinger Letter.
This would be the largest increase since 2012 when Social Security benefits ticked up 3.6%.
A range of prices that had been depressed by the pandemic last year are rebounding. Gasoline prices have risen 23% since the beginning of the year. Medical care costs are also making up for lost time as well. As the economy opens up more fully with the retreat of the pandemic, more prices are likely to reclaim some lost ground, such as air fares and sporting events.
Finally, the recent passage of the government stimulus bill with $1,400 checks for individuals will likely boost demand for new and used motor vehicles and other consumer goods.
The 1.3% increase for 2021 was the smallest COLA since 2017.
COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (similar to, but not exactly the same as, the urban dwellers’ consumer price index used in inflation reporting). If prices don’t increase and even fall, the COLA is zero. That happened in 2010 and 2011, as the economy struggled to recover from the Great Recession, and again in 2016, when plummeting oil prices swept away any chance of a COLA for that year.
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