Odds Are Growing For Zero COLA In 2016

Odds Are Growing For Zero COLA In 2016

The plunge in gasoline prices, in recent months, sent the consumer price index (CPI) into a nose-dive. That deflation is expected to make a big dent in the Social Security income of 56 million people next year, according to new cost-of-living adjustment (COLA) estimates prepared for TSCL. As inflation data continues to come in, early projections indicate that the COLA for 2016 is likely to be zero.

Latest CPI data indicates that the overall rate of inflation has gone down and is lower than it was a year ago. When that happens, no Social Security COLA increase is payable. A similar situation occurred in 2009 and 2010, when millions of Social Security beneficiaries and other recipients of COLA-adjusted benefits got no increase. Yet retirees reported in surveys conducted by TSCL that during 2010 and 2011 they continued to experience increases in their actual costs, leaving them to dig deeper into savings, or go into debt.

The COLA is determined using a formula set by law. The annual increase is equal to the percentage of increase (if any) in the average Consumer Price Index For Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective (2014). If there is no increase, there would be no boost in benefits effective with the payment received after December 31, 2015.

There are still several months of CPI data to go, and inflation could reverse and start climbing again. But even so, the pace of inflation is likely to remain low and wouldn’t yield much of a COLA. In March the Congressional Budget Office (CBO) projected a COLA in 2016 of 0.9 percentage point.

What happens to the Social Security payment if there’s no COLA but Medicare Part B premiums increase? A “hold harmless” provision will protect most beneficiaries from reductions to their Social Security benefits if the amount of increase in Medicare Part B premiums exceeds the increase in their COLA. The provision does not apply, however, to individuals with incomes of $85,000 or more and couples with incomes of $170,000 or more. It also doesn’t apply to people enrolling in Medicare for the first time.

TSCL supports legislation that would provide a guaranteed minimum COLA, especially in years in which inflation drops so low no COLA would be payable. Learn more about COLAs and how they are calculated at www.SocialSecurity.gov.

 

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