Bad News for Social Security Recipients

If you’re retired and drawing Social Security benefits, you might have felt disappointed to learn that you won’t be receiving a cost of living adjustment (COLA) for 2016. Or, if you’re still preparing for retirement, you might wonder what this news means for you. Read on for answers to some of the most common questions about Social Security’s yearly COLA.

Why isn’t there a COLA in 2016? Many people assume that COLAs will be automatically issued each January, but that isn’t actually true. Social Security ties COLA to the Consumer Price Index, which measures inflation by tracking prices on a variety of goods and services. During most years, the Index does show that inflation has occurred, so a COLA is announced for Social Security beneficiaries. However, the inflation rate remained flat in 2015, so there won’t be a COLA this year.

But my own cost of living did increase last year! Why didn’t the Consumer Price Index show inflation? Remember that the Index measures average prices across a variety of goods and services, and their formula might not reflect your own expenditures. In fact, many experts argue that the Index is not an accurate measure of the cost of living for retirees. It places heavy emphasis on gas, which is less important to retired workers who no longer commute to work every day, and less emphasis on items like health care which are more important to retirees.

Despite the inflation rate remaining near zero in 2015, we did see a 7 percent rise in the cost of health care. On top of that, about 30 percent of Medicare recipients will pay higher premiums this year. No matter what the Consumer Price Index says, you might indeed be facing a rise in your own expenses in 2016.

Aside from my Social Security benefits, how else will this affect me? If you receive a pension, it’s possible that you won’t receive a cost of living adjustment on those payments either. That’s because many pension plan administrators follow Social Security’s lead in determining their own cost of living adjustments.

Yikes! I was counting on Social Security to cover my extra out-of-pocket expenses this year. What should I do now? Remember, Social Security was never meant to cover all of your expenses in retirement. It’s only meant to be a supplement to another form of retirement income. If you need to make adjustments to your retirement plan, or if you’re still planning for retirement, call us for an appointment. We can discuss ways to establish a steady stream of income that can protect you from a rise in your own cost of living – no matter what Social Security decides about COLA each year.

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