Social Security Cost-Of-Living Increase For 2016 In Danger

This just in from AARP:  The annual cost-of-living (COLA) increase for Social Security recipients is probably not going to happen in 2016. Retirees depend on the COLA to keep the value of their Social Security benefit from depreciating over time.

Meanwhile, Medicare Part B premiums are almost certain to go up in 2016. Silver lining: if there’s no Social Security COLA, retirees whose Medicare premiums are deducted from their monthly Social Security benefits will not have to pay the higher Medicare premium

Here’s the full text of the AARP statement that landed in my email Friday:

 “Nearly 60 million Social Security recipients will probably not get a cost-of-living increase next year, according to projections in the 2015 Social Security and Medicare trustees reports.

This would be the third time Social Security beneficiaries have gone without a cost-of-living adjustment (COLA) since 1975, when automatic raises were put into place. The COLA this year was 1.7 percent, making the average monthly check for retired workers $1,334 as of May.

Increases in benefits are tied to the third-quarter average inflation rate compared to the same period the previous year. Inflation has been virtually flat in 2015, due to the crash in oil prices, says Michael Kitces, director of research with Pinnacle Advisory Group in Columbia, Md.

While that makes a COLA appear unlikely, it “is a projection and could change,” says Nicole Tiggemann, a spokeswoman with the Social Security Administration. But it would take a dramatic upturn in prices in the next few months to trigger a COLA for 2016.

AARP and other advocacy groups have long argued that the Consumer Price Index (CPI) used to determine the inflation rate and calculate annual Social Security COLAs doesn’t accurately measure the spending patterns of older Americans.

“Older Americans tend to spend their income differently from the working population that is measured by the current CPI,” says Alison Shelton, senior strategic policy adviser with the AARP Public Policy Institute. For instance, they spend more on health care, a cost that tends to rise faster than the inflation rate, she says.

The net effect of this difference has been about 0.2 percentage points a year, she says. In other words, if the standard inflation rate is 1.5 percent, for older consumers it feels like a 1.7 percent increase. “It tends to add up,” Shelton says.

The lack of a COLA would also have an impact on Medicare beneficiaries. Most of those who have Part B premiums deducted from their Social Security checks would not see an increase in those payments because rules hold them steady when there is no COLA. That’s about 70 percent of Medicare beneficiaries who now pay $104.90 a month in Part B premiums.

The rest of the Medicare beneficiaries — including those with higher incomes, those who didn’t participate in Social Security at their workplace and new beneficiaries — would bear the brunt of any premium increases. The latest Medicare trustees report projects that the base premium for these groups next year would rise to $159.30 a month under this scenario.”

More than the COLA is in danger, in the medium run and the long run.

I used to be confident that Social Security would continue to provide an income floor for older workers, at least for the foreseeable future. However, a number of developments in recent years have shaken my faith.

The inability of the American political system to effectively manage public revenues and expenses, the faltering economy, the embrace of austerity in advanced Western nations, and finally, the steadily increasing concentration of wealth among the few and impoverishment of the many, all these changes give me reason to worry about Social Security.

Most of all, the steady drumbeat of propaganda against Social Security seems to be creating a self-fulfilling prophesy of failure.

I personally don’t think the demise of Social Security is inevitable. But the prospects for deep cuts in the Social Security program seem to be growing. Same thing is true for Medicare and Medicaid, I believe. A likely outcome in my opinion: one of the three — Social Security, Medicare, or Medicaid — might be sacrificed in an attempt to save the other two.

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10 thoughts on “Social Security Cost-Of-Living Increase For 2016 In Danger

  1. Jean

    If one of the three is sacrificed, it is most likely to be Medicaid; means-tested programs are usually much more vulnerable than more universal programs. This means that we should also be wary of proposals to save Social Security and Medicare by making them more means-tested, because these changes would make the programs politically vulnerable over time.

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    1. Editor (Retired) Post author

      Thank you Sue! Isn’t it amazing how similar are conditions and problems in the U.S. and UK? Yes, the systems are overloaded. In the U.S., systems are way overloaded. Overloaded especially, in relation to the willingness of the people and the political leaders to pay for what is needed. A big part of that reluctance to pay, I fear, is simple greed. Greed by corporations, by the wealthy (who by logic should be the most generous), and by average citizens all up and down the line. Am I judgmental, or what?! I don’t exempt myself from the criticism. I fear that some of our systems will collapse under the weight and stress of the load. I’m not sure, but I think Canada is in the same boat with the U.S. and UK. Systems, especially economic systems, are probably even more overloaded in places as disparate as Russia and China.

      As I wave the flag in defense of Social Security and Medicare, I have a pang of guilt that senior citizens in our societies are also guilty of greed. Other sectors of our populations are probably worse off than seniors. Impoverished families and children, first and foremost. The educational system in the U.S. is very uneven. Excellent in some places and for some people, but certainly not for all. Our education and health care systems are of critical importance to all age groups in the population. Thanks for your insights, Sue.

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      1. Sue Dreamwalker

        Thank you for this indepth reply John.. I think the world Has to rethink the systems in place.. The monetary systems are taking a pounding yet again.. and its only a matter of time before the inevitable happens . Yet we still are stuck in our old ways .. Maybe it has to collapse as horrid as that will be, before we see and end to the haves and have nots.. What ever happens John its not going to be a pleasant experience which ever way we look at it. 😦

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  2. bkpyett

    Australia, too, has a government forgetting the poor. Apparently the average annual wage is now $75.500, an amount I never reached as a teacher. I am grateful for the Social Security we now receive, and our needs are far less than when we had children at home. At least our Medicare system is good, though this government is trying to change things for the worse. Luckily they don’t have the numbers in the Upper House.
    Thank you for your follow, and it is a privilege to follow yours too!

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  3. Pingback: AARP Says More Work And Less Retirement Is Good News | Retirement Made Simple

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  5. Ellen andrasick

    99.9% depend on social security. If they aren’t going to give us a raise. Then stop increasing the cost on everything even when we file our income tax.
    Stop bringing in the illegals because the first place they go to is social security which is our money and now we as American have to do with out.

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    1. Editor (Retired) Post author

      You’re so right Ellen. Almost everyone depends on Social Security, not to mention Medicare, in their later years. And yes, I too have sticker shock over the cost of living in my part of America. I’m hoping to more to a locale with lower rents ASAP.

      Immigration is a good news/bad news dilemma for the American. They add to the burden on our educational and health systems. They take at least some of the unskilled jobs that American citizens would otherwise fill. And they enable employers to pay less than if the supply of labor were tighter.

      In regards to Social Security, however, immigration will undoubtedly be a blessing. America, and other parts of the developed world, such as Japan, are graying rapidly. As more baby boomers retire, and our population grows older, our Social Security benefits begin to reach the limits of our resources. There are relatively easy fixes, like raising the amount of income subject to the Social Security tax, or reducing benefits to the very wealthy. But even these easy fixes meet resistance.

      Immigration may turn out to be the right medicine — even though we might not like it — for aging developed countries, such as Europe and America. Immigrants will fill a void in the work force that will likely develop as more and more of us retire. Immigrants will keep the goods and services flowing. And they’ll pay taxes — income tax, property tax, employment tax. The employment taxes paid by immigrants in the near and medium future will at least partially offset demands on the Social Security Trust Fund. We may well decide to encourage MORE immigration as the expedient way to keep Social Security and Medicare whole. Meanwhile, countries like Japan, aging fast but tolerating little immigration, may fall further behind in economic competition with the U.S. and Europe.

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