Recently, the Social Security Administration released some news that made many retirees sigh. For only the third time in history, beneficiaries will not receive a cost of living adjustment (COLA) for 2016.
Normally, the administration announces a cost of living adjustment toward the end of the year, effective for payments during the following year. COLA is meant to help Social Security recipients manage their budgets when inflation causes a rise in prices. In fact, COLA is tied to the Consumer Price Index, which measures the rate of inflation.
This year, there won’t be a COLA, because the Consumer Price Index showed that the inflation rate remained near zero.
What does this mean for retirees who receive Social Security benefits?
One reason the Consumer Price Index reflected a flat inflation rate was because gas prices have dropped significantly over the last half of 2015. That’s good news for most people, but gas prices tend to affect retirees much less than the average worker who must commute every day.
On the other hand, the cost of health care rose by about 6.9 percent. Remember, that’s an average, and health care for older people tends to cost more. In addition, about 30 percent of Medicare recipients will see higher premiums in 2016. Watch your mail closely for a notice from Medicare, which will tell you whether your premiums have changed.
If you have a pension plan, ask your plan administrator whether cost of living adjustments are tied to the COLA issued for Social Security. Some pension plans are set up this way. That means during years you don’t receive an increase on your Social Security payments, your pension payments also remain flat.
For more information about Social Security, retirement income planning, or budgeting, call our office at (781) 995-0253 to schedule an appointment. We specialize in helping retirees like you work toward maximizing their fixed incomes.
Portions of this article have been excerpted from “What No Social Security COLA Could Mean for You” by Maryalene LaPonsie, U.S. News Money.