Social Security Recipients Won’t Get Cost-of-Living Bump in 2016, Says Government

Social Security Recipients Won’t Get Cost-of-Living Bump in 2016, Says Government

For the third time this decade, Social Security recipients won’t be seeing an annual cost-of-living adjustment.

Blame soft inflation, including the nearly 30% drop in gas prices over the past year. The official price measure used to calculate the annual living-cost adjustment was down 0.4% from last year’s level in the third quarter, the Labor Department said Thursday.

Congress adopted the formula in the 1970s. While it has resulted in an average benefit increase of 4.1% over the past 40 years, benefits have gone up an average of just 2% over the past 10 years. There were no increases for 2010 and 2011.

The formula also calculates future living-cost adjustments from the highest price level from the third quarter of any year, which requires looking back to the last year in which there was a living-cost adjustment. That means that any future benefit increases must reflect gains over the level of summer 2014, which was higher than this year, and would hold down any raise in 2017.

The lack of inflation also means there won’t be an increase in the amount of wage income—currently $118,500—subject to payroll taxes.

Some 56 million Americans receive Social Security benefits along with 8 million more who collect a benefit called Supplemental Security Income, which goes mainly to the poor and disabled. The average monthly Social Security check is $1,224.

Social Security is the primary source of income to many American households. An estimated 26 million more people would have fallen below the government’s official poverty line last year without the payments, according to the Census Bureau.

“In this economy, nothing is really guaranteed anymore,” said June Bretzin, 75, of Cuyahoga Falls, Ohio. She’s spent the past year looking for part-time work while holding a temporary job that pays $9.10 an hour doing payroll for a nonprofit group. She says without income to supplement her Social Security check, she would have a hard time making her monthly mortgage payment.

“You find ways to cut corners: cut back on travel, your entertainment, going out to eat,” she said.

The absence of any cost-of-living bump also triggers a “hold harmless” provision that prevents Medicare premiums from rising for about 70% of beneficiaries, who will continue to pay their existing monthly premiums of $104.90.

Under current law, however, premiums for the other 30% of beneficiaries—including new enrollees, those who don’t receive Social Security benefits and enrollees with higher incomes—must be raised substantially to compensate. Federal actuaries estimated in July that those monthly premiums would rise 52% to $159.30.

Officials who oversee the Medicare program at the Department of Health and Human Services are reviewing ways to reduce the increase.

AARP, the seniors-advocacy group, called on Congress this week to extend the hold-harmless provision to all Medicare beneficiaries, while budget-deficit hawks have warned against allowing the costs of any changes to increase deficits.

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