If you paid attention to the news released by Social Security in the fall, you already know that they aren’t issuing a cost of living adjustment (COLA) for beneficiaries in 2016. Normally, Social Security checks increase slightly each January, in response to the increased cost of living over the previous year. For the third time in history, that didn’t happen this year.
The lack of a COLA will impact retirees, and those soon to retire, in the following four ways.
Your Social Security checks will remain the same, but your own living expenses might be higher this year.
The decision not to issue a COLA was made in response to a flat inflation rate in 2015, as measured by the Consumer Price Index. The Index measures a variety of prices throughout the year, but is heavily weighted by some factors like gas prices, which tend to affect retiree budgets much less. On the other hand, the cost of health care did rise last year, and is still rising. The end result is that you might spend more this year, but on the same budget you had last year.
COLA might affect more than your Social Security check.
If you receive a pension, you might get slight cost of living adjustments each year. But since many pension plan administrators base their COLA calculations on the decision made by Social Security, your pension check might stay the same this year.
You might pay higher Medicare premiums this year.
About 30 percent of Medicare recipients – those who pay their premiums out of pocket, along with those who have delayed their Social Security checks – will pay more for Medicare this year.
You might consider dipping into your retirement fund.
Due to the fact that some of your costs are rising, but your income is not, you might be tempted to withdraw more money from your retirement fund. But since this decision could have far-reaching consequences, especially if you live longer than you had expected, it’s probably not a good idea.
If you’re still planning for retirement, these issues also impact you. They are a good reminder that you shouldn’t count on Social Security to provide your entire stream of income in retirement. Call us to discuss other ways to establish steady and reliable income, and we can help you deal with rising expenses on a fixed budget.
This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.