Social Security recipients won't get COLA increase, despite rising costs

Low inflation in 2015 brought lower gas prices, more purchasing power, and no cost-of-living adjustment for Social Security recipients. Medicare premiums may also be affected.

Mike Blake/Reuters/File
A pair of elderly couples view the ocean and waves along the beach in La Jolla, California (2012).

Social Security benefits will receive no cost-of-living adjustment (COLA) for 2016, continuing this decade's trend of being light on benefit increases.

Since Congress adopted a formula for COLA and benefit increases for Social Security in the 1970s, benefits have experienced average annual increases of more than 4 percent. According to The Wall Street Journal,  benefits have increased an average of 2 percent annually since 2010. No increases were given in 2010 or 2011. 

2016 is joining the no COLA club, even as Americans benefit from low inflation in other ways. COLA increases for Social Security are dictated by the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W). Inflation, measured by the CPI-W, has to raise above last year’s inflation rate to trigger a COLA; instead, inflation decreased 0.6 percent.

The low inflation rate is due in part to a dive in gasoline prices, which fell more than 9 percent in September according to the Bureau of Labor Statistics. Along with lower gas prices, consumers will have slightly more purchasing power from their incomes as a result of lower inflation, which comes at a time when wages are barely increasing. The slowdown in those areas of the economy has helped cast doubt on whether Federal Reserve will raise interest rates before the end of this year.

Many retirement-age consumers, however, have concerns beyond lower gas prices and better purchasing power. The lack of a COLA increase for 2015 comes as many Social Security recipients face the possibility of higher Medicare premiums.  

With the “hold harmless” provision, which ensures Social Security checks will not decrease in value, currently in place for Medicare premiums, most premiums will not increase without a COLA. The Wall Street Journal reports about 70 percent to beneficiaries will continue to pay the current  monthly rate of $104.90 in Medicare premiums.

However, the other 30 percent, which could include new Medicare enrollees and those with higher incomes, could see double digit increases. Most of those hit with premium increases will pay 52 percent more, or $159.30 per month, according to Market Watch. About five percent of those recipients that are over certain income thresholds will see more drastic increases.

Medicare premium increases will take effect unless the “hold harmless” provision is extended or cost increases are reduced.

There were Social Security COLAs of 1.7 percent in 2015, 1.5 percent in 2014, and 1.7 percent in 2013, far below the 4.1 percent average. 

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