Retirees hoping for higher Social Security benefits shouldn’t hold their breath: there likely won’t be a cost-of-living increase in 2016.
Why? Blame low inflation. By law, Social Security cost of living adjustments (COLAs) are pegged to the CPI-W, a consumer price index for all urban wage earners and clerical workers. While official word on a COLA won’t come until the end of October, the CPI-W was down 0.3 percent over the last 12 months through August, making an increase highly unlikely.
If there’s no increase in 2016, it will be only the third year since the Social Security Administration started paying COLAs in 1975 that one has not occurred. Low inflation ruled out increases in 2010 and 2011 as well.
Low or no COLAs are likely here for the foreseeable future. Last year, Social Security recipients saw a COLA increase of 1.7 percent, or about $22 a month. The trustees of the Social Security Administration project COLAs averaging about 2.7 percent or so for the next several years. The highest COLA increase ever—14.3 percent—occurred in 1980, thanks to a period of unusually high inflation.
While the small or non-existent increases relieve some of the financial stress Social Security is experiencing, retirees who are, post recession, living on reduced nest eggs and seeing lower returns from investment vehicles like bonds could struggle. For many, putting a financial plan in place may be necessary to help stretch Social Security dollars further.
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