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- Retirees will see their Social Security benefits increase by 1.3% in 2021 due to an annual cost-of-living increase by the Social Security Administration, announced October 13.
- The average retiree received a benefit of $1,514 in June 2020, meaning that the average retiree can expect to see an increase of about $20 per month.
- Next year’s 1.3% adjustment is lower than that of the past several years — adjustments were 2.8% and 1.6% for 2019 and 2020, respectively.
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The Social Security Administration announced this week that retirees’ benefits are set to increase slightly for 2021. The SSA announced a 1.3% annual cost-of-living adjustment for next year’s Social Security benefit. The adjustment is expected to give a small income boost to more than 72 million Social Security and Supplemental Security Income beneficiaries next year.
The administration evaluates the cost of living based on the Consumer Price Index for the previous year’s third quarter, and adds these adjustments to help retirees and other Social Security beneficiaries keep up with inflation.
The 1.3% adjustment will be a modest increase for retirees and SSI recipients. The average retiree receives $1,514 in Social Security payments monthly, according to data from the SSA. This will put the average increase at $19.68 per month.
Next year’s adjustment is the lowest since 2017
The cost-of-living adjustment changes each year, adding to benefits some years and keeping them the same during other years. In the past several years, the adjustment has ranged from 0% to 2.8%, according to Social Security Administration data.
This year’s adjustment is the lowest since 2017, when benefits only increased by 0.3%. And this year’s increase in the midst of the coronavirus pandemic is much lower than those seen during the last recession — in 2008 and 2009, beneficiaries saw increases of 2.3% and 5.8%, respectively.
While the increase is small, retirees should make other moves to stay ahead of rising living costs
The increase doesn’t add up to much, and retirees will need to stay ahead of rising living costs and the financial impacts of the coronavirus in other ways.
For people entering retirement, financial planner Malcolm Ethridge recommends keeping a larger than normal emergency fund. “I advise clients to hold two whole years of expenses in cash prior to retirement so that regardless of what the market does in the immediate term, they will not have to worry about income,” he writes for Business Insider. Then, money can stay invested longer to keep up with inflation.
Keeping a health savings account can be another good way for retirees to prepare in advance for constantly rising healthcare costs. These tax-advantaged investment accounts can be used in retirement to pay for medical expenses and costs, or reimburse yourself for qualified medical expenses. The withdrawals are tax-free, making another big benefit for retirees looking to lower their tax bills in retirement.
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