If you’re heard the recent news from the Social Security Administration, you might feel disappointed or even a bit worried. For the third time in history, the administration has announced that beneficiaries will not receive a cost of living adjustment (COLA) in 2016.
During most years, Social Security announces a COLA toward the end of the year, to become effective starting January 1. Cost of living adjustments help retirees stay afloat when inflation threatens to infringe upon their fixed budgets. Social Security even ties the COLA to the Consumer Price Index, the most common measure of inflation.
Since the Consumer Price Index showed a near-zero inflation rate for 2015, there won’t be an increase in benefits checks for 2016.
The impact on retirees.
The Consumer Price Index measures prices on a variety of goods and services, but the price of gasoline is heavily weighted. During 2015, gas prices actually dropped significantly, which helped the inflation rate to remain almost flat. But since most retirees no longer have a daily commute, they are much less affected by gas prices than the average American worker. In fact, many experts think tying COLA to the Consumer Price Index is unfair for this reason.
Even though the Consumer Price Index reports an inflation rate near zero for 2015, the cost of health care rose by about 7 percent. Plus, about 30 percent of Medicare recipients will be charged higher premiums in 2016. For older people, a flat inflation rate means very little in the face of rising health care costs.
Another potential problem is that many pension plans are tied to the COLA issued by Social Security. During years that you don’t receive a COLA, you might not receive a raise on your pension benefits either!
Social Security was just meant to be a supplement to your retirement income, but the lack of a COLA this coming year could negatively affect many retirees. If you need help structuring your retirement income plan or just have questions, give us a call at (760) 436-1711 to schedule a no obligation consultation.
This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency
15156 – 2015/12/10