What is the Social Security COLA Increase? – 2020 Guide

The Social Security Administration has announced next year’s cost-of-living adjustment (COLA). However, this year’s increase is a modest number compared with last year’s. In this post, we will review the 2020 Social Security COLA Increase and explain the other 5 major changes that are coming for Social Security that you should know about.

This post about Social Security COLA Increase will cover:

  • What is Social Security COLA?
  • Social Security COLA Increase for 2020
  • Social Security COLA History
  • 2020 Social Security Changes that Might Affect You

"Social Security COLA Increase"

What is Social Security COLA?

The Social Security Administration (SSA) is required by law to prevent inflation from eating into the buying power the nearly 69 million Americans who receive benefits.

To do this, the SSA uses a Social Security COLA formula based on the consumer price index to adjust payouts every January.

Since prices typically rise, payouts typically rise also. If prices ever fell, payouts would stay unchanged until prices catch back up again.

The COLA is calculated from the third quarter (July through September) Department of Labor’s Consumer Price Index (CPI-W).CPI-W.

To determine the following year’s COLA, the Social Security Administration simply takes the average CPI-W reading from the third quarter of the current year and compares it to the average reading from the third quarter of the previous year.

If the average has risen from one year to the next, it implies that inflation has taken place.

This means that Social Security beneficiaries will receive a “raise” that factor in the rate of inflation.

In the rare instance that the reading declines from one year to the next, signaling deflation, benefits remain static. This has only happened on three occasions (2010, 2011, and 2016).

Why is COLA Important to Seniors?

Given that 62% of retired workers get at least half of their income from their Social Security benefit, there is great anticipation among seniors about what the COLA will be for each year.

That’s because, for many seniors, COLA is their “pay raise” and has an impact on how much money they have available to spend.

Social Security COLA Increase for 2020

The Social Security Administration announced the 2020 COLA increase on October 10, 2019. Here’s what you should know.

The Social Security Cost of Living Adjustment (COLA) will see an increase of 1.6% in 2020.

As a result, nearly 69 million Americans will see a 1.6 percent increase in their Social Security and SSI benefits in 2020.

The increase will begin with benefits that Social Security beneficiaries receive in January 2020. Increased SSI payments will begin on December 31, 2019.

Social Security COLA History

If you want to look ahead for what COLA would be for 2021 and beyond, one way to get a good idea of what the future holds is to look at the last 10 years of COLA.

Here’s a look at COLA increases since 2011.

2020: 1.6%

2019: 2.8%

2018: 2%

2017: 0.3%

2016: No increase.

2015: 1.7%

2014: 1.5%

2013: 1.7%

2012: 1.7%

2011: 3.6%

2020 Social Security Changes

Here are other changes to the Social Security program coming in 2020.

Social Security Wage Limit?

If you are currently collecting Social Security benefits but haven’t reached your full retirement age, part or all of your Social Security payments could be temporarily withheld.

Beneficiaries who are working but have not reached their full retirement age (age 66 for people born in 1943 through 1954) will be docked $1 in benefits for every $2 in earnings above $1,520 a month, or $18,240 a year.

However, A worker who turns 66 in 2020 can earn up to $4,050 a month before his or her birthday, without losing benefits.

Above that threshold, the worker will lose $1 in benefits for each $3 earned.

Once you reach full retirement age, you can earn as much as you like without losing Social Security benefits at all.

Maximum Social Security Benefit

The maximum Social Security benefit changes from year to year, based on factors like inflation.

According to the Social Security Administration (SSA) the maximum monthly Social Security benefit that an individual who files a claim for Social Security retirement benefits in 2020 is:

$3,770 for someone who files at age 70.
$2,861 for someone who files at full retirement age (currently 66).
$2,209 for someone who files at 62.

For comparison, the average Social Security retirement benefit in 2019 is $1,461 a month while the average Social Security disability benefit is $1,234.

The full retirement age increases

In 2020, the full retirement age will increase by two months to 66 years and eight months for persons born in 1958.

If you were born during this period, you will have to wait until you are at least 66 years and eight months to start collecting Social Security benefits if you want to get the full amount you are entitled to at your full retirement age.

The full retirement age will increase by two months in 2021 and again in 2022.

It will rise to 67 in 2022 for anyone born in 1960 or later.

What is the Full Retirement Age?

Under the original Social Security Act of 1935, workers had to reach age 65 to receive a full retirement benefit.

However, in 1983, Congress passed legislation to increase the full retirement age to 67.

This was to ensure that the Social Security trust fund does not run out of money.

It was also due to the fact that seniors were living longer, and thus collecting benefits over a longer period of time than when the Social Security Act was originally passed.

However, to make the change fair for seniors who were soon to retire, Congress decided to stretch the implementation over a 22-year period, with an 11-year hiatus at which the retirement age will remain at 66.

The table below shows the full retirement age based on the year you were born.

Year of Birth Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

Disability income thresholds increases

There are currently some 8.5 million people receiving Social Security disability benefits. In addition, 117,000 spouses and 1.5 million children also receive benefits.

Every year, the Social Security Administration updates the monthly earning thresholds by which payments would cease for those receiving disability.

This is the maximum monthly income anyone on disability who is not blind can earn without losing their benefits. That amount was $1,220 in 2019.

However, in 2020, the amount rises by $40 to $1,260 per month. This means that you can work and earn up to $1,260 per month without losing your disability benefit.

End of File-And-Suspend

In previous years, to maximize Social Security benefits, higher-income earners could file for Social Security benefits and then suspend their benefits. However, this move allowed their spouse to start collecting benefits, which are usually higher than the spouse would have collected based on their own work history.

This was called “file and suspend”. In 2015, Congress made two major changes to Social Security. One of them was to get rid of the “file-and-suspend” process.

The last batch of people who filed and suspended by that April 29, 2016, deadline will turn 70, in 2020. After that, there will be no more beneficiaries taking advantage of the “file and suspend” process.

Social Security COLA Increase Summary

We hope this post on the Social Security COLA Increase was helpful.

If you have further questions about COLA or Social Security retirement benefits in general, please let us know in the comments section below.

Be sure to check out our other articles on Social Security including Maximum Social Security Benefits for 2020, and Social Security Questions and Answers.