How to Prepare for a No-to-low 2021 Social Security COLA
Retirement Daily Guest Contributor
By Dr. William Reichenstein, CFA
There is a good chance the Social Security COLA for 2021 will be 0%. If not, it is likely to be low. (Based on consumer price index data through April, the Senior Citizen League estimated that there will be no COLA for Social Security benefits for 2021.)
How the Hold-harmless Provision Works for Social Security
There is a hold-harmless provision that protects most Social Security recipients from a decrease in their monthly Social Security payment (net of Medicare Part B premium). Consider someone who receives $1,000 gross in Social Security monthly benefits in 2020 and $885.40 after deducting the $144.60 per month standard Medicare Part B premium. If there is no COLA for 2021, then this person would likely continue to receive $885.40 per month in (net of Part B premium) Social Security benefits even if the Part B premium increases, which it is likely to do. Read about increases in Part B premiums and the hold-harmless provision.
The qualification of “likely” is as follows: The person must be 1) entitled to Social Security benefits for November and December of 2020, 2) Medicare Part B premiums must be deducted from this person’s Social Security payments for November 2020 through January 2021, and 3) this person must pay the standard Part B premium of $144.60 per month and not a higher Part B premium due to his or her high income (that is, an Income Related Monthly Adjustment Amount (IRMAA) does not apply).
Suppose we have a 0.5% COLA for 2021. Then the gross Social Security payment will be $1,005. If Medicare Part B standard premium increases by more than $5 per month then this person will continue to receive $885.40 in Social Security monthly benefits (net of the Part B premium).
Pay Part B Premiums Directly to Social Security
There is not a lot most individuals can do to avoid this problem. However, if they are paying for Part B premiums directly to Medicare then they should change this by November to makes sure the payment is deducted from their monthly Social Security check. Also, people who have Social Security premiums paid by Medicaid do not qualify for this hold-harmless provision.