No Social Security Increases Expected for 2016

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According to a recent report from the Center for Retirement Research it appears that there will be no annual cost-of-living increase for Social Security recipients in 2016.

This will come as unwelcome news to the millions of retires who count on these increases to help them keep up with their ever increasing expenses.   

So why no social security increases for 2016?

Any adjustment in Social Security benefits as of Jan. 1 of each year is based on comparing the Consumer Price Index (CPI) in the third quarter of the preceding year with the CPI in the prior year’s third quarter. The CPI in 2015’s third quarter was below 2014’s third-quarter inflation, and thus no cost-of-living increase for next year.

Many retires will argue that their expenses have not decreased, but rather increased substantially over the past year—and they would be correct in their observations. The problem exists because of the way the government calculates the inflation rate. The government’s methodology consists of comparing the average cost of a fixed “basket of goods” that the “typical” American family purchases. They then make some adjustments to that calculation that typically will have the effect of lowering that initial rate.

The real problem exists because how the average retiree spends their money can be substantially different than how an average family in their 40’s with two children does.     

The typical retiree’s budget, as a percentage of their total monthly income, will be much higher for items such as food, utilities, insurance, taxes, and of course, health care related expenses.

These items tend to go up year after year, some substantially. Health care expenses, for example have been increasing dramatically, especially for durable medical goods and prescription drugs. All said, the cost of living tends to be higher for retiree’s than it is for the “average” American household. While many people see this as an obvious glaring problem, Congress seems to be blind to it. Of course, this is one more reason why diligently saving for retirement is so critical.

So, the bad news is that unless Congress acts quickly (which is unlikely) if you are already collecting Social Security, you won’t see an increase in your benefits for 2016. The silver lining is that because of this, most retiree’s won’t see an increase in their Medicare premiums either.

According to the Centers for Medicare and Medicaid Services, the current law doesn’t allow for an increase in the Medicare premiums in those years where there is no cost-of-living increase in Social Security benefits, at certain income levels. For example, there would be no increase for those single retirees whose total annual income is under $85,000, or for couples under $170,000. Unfortunately, retiree’s making over those amounts are likely to see substantial increases in their premiums for 2016.      

In their report however, the Center for Retirement Research also points out that while most retiree’s may get a reprieve in their Medicare premiums in 2016, some of it may be added back in subsequent years when the cost-of-living adjustment is reinstated.

If you have not taken the time to review your retirement plan, in light of the fact that there will be no cost-of-living adjustment for your Social Security in 2016, now would be good time to do so, especially with the fact that we anticipate seeing lower interest rates for the foreseeable future. And if you don’t currently have a plan, no better time than the present to get started.