Here's why your rising cost of living is not expected to be covered by a cost-of-living increase.
Social Security recipients typically receive a small boost in benefits each year. But it’s highly unlikely that will be the case in 2016.
The annual cost-of-living adjustment, known as COLA, is a government measure of inflation. Since 1975, the Social Security Administration has been using COLAs to bolster payouts to protect Americans against inflation.
There’s only been two other years – 2010 and 2011 – when Social Security recipients haven’t received an increase in their benefits as a result of COLAs, but it’s likely that 2016 will follow suit, according to the Associated Press.
In 2015, Social Security benefits went up 1.7 percent as a result of COLA. The COLA increase has been less than 2 percent for the past three years, CNN Money said.
Although the Social Security Administration hasn’t officially announced that the COLA is not happening for next year, USA Today said it’s unlikely anything will change. So, what happened to this year’s COLA? Two words: cheap gas.
“The inflation measure used by the Social Security Administration was down 0.3 percent for the 12 months that ended in August, largely due to a 23 percent drop in gas prices,” CNN Money explains.
The COLA, which is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, affects more than 70 million Americans each year, the AP said. The CPI is based on price changes in housing, food, clothing, transportation, energy, medical care, recreation and education.
But here’s the thing: the government’s measure of inflation “doesn’t reflect how people on Social Security spend,” CNN Money said.
Although cheaper fuel at the pump is largely beneficial to consumers who are looking to cushion their savings account, seniors don’t benefit nearly as much because they typically don’t drive as much as their younger, working counterparts. Seniors are also spending a bigger chunk of their income on health care, and this likely comes as no surprise to you, but medical costs have risen far quicker than overall inflation. The AP said:
Most have their Medicare Part B premiums for outpatient care deducted directly from their Social Security payments, and the annual cost-of-living increase is usually enough to cover any rise in premiums. When that doesn’t happen, a long-standing federal “hold harmless” law protects the majority of beneficiaries from having their Social Security payments reduced.
But that leaves about 30 percent of Medicare beneficiaries on the hook for a premium increase that otherwise would be spread among all. Those who would pay the higher premiums include 2.8 million new beneficiaries, 1.6 million whose premiums aren’t deducted from their Social Security payments, and 3.1 million people with higher incomes.
An official announcement on COLA from the Social Security Administration is expected this month.
Do you receive Social Security benefits? How will you be affected if there’s no increase in benefits next year? Share your comments below or on our Facebook page.