Social Security recipients, disabled veterans, and federal retirees will not receive a cost-of-living adjustment to their benefits this year.
Each year, Social Security recipients typically see a cost-of-living adjustment that helps offset the ever-rising prices of food, medication, housing, and everything else. This cost-of-living adjustment, or COLA, runs almost like clockwork, but something has been gumming up the works lately.
In the last 40 years, there have only been three instances where Social Security didn’t see a COLA bump, and all three have happened since 2010.
The problem is that Social Security cost-of-living adjustments are pegged to inflation. This went into effect in the 1970s, when congress was repeatedly under pressure to increase Social Security benefits. With the persistently high inflation of the day, congress put into place automatic yearly Social Security benefits increases that would be based on inflation.
NBC News reports that the inflation-based COLA has resulted in an average increase of 4 percent per year since 1975, but soft inflation in recent years has put on the brakes. In the last 10 years, the COLA has only hit that 4 percent mark a single time.
There will be no benefit increase next year for millions of Social Security recipients: http://t.co/4p31KcmW1M pic.twitter.com/rF4aRB8dPV
— AP Interactive (@AP_Interactive) October 15, 2015
The most recent inflation numbers came out this past Thursday, and the data didn’t look good for seniors and others who depend on Social Security.
The Wall Street Journal reports that low gas prices are at least partially to blame, as the price of gas has dropped nearly 30 percent in the past year. That’s only part of the picture, but the figure used to determine cost-of-living increases is actually down 0.4 percent since last year, according to the Labor Department.
That means Social Security recipients won’t see their COLA for 2016, but the reality of the situation is even more dire than that. Since COLA isn’t based just on the previous year, seniors, disabled vets, and others won’t see a cost-of-living increase until we see inflation gains that top numbers from 2014, which were higher than the numbers we see today.
This is a problem for people who depend on Social Security and others who depend on the COLA.
According to the Wall Street Journal, the same COLA that affects 56 million social security recipients also affects benefits of 8 million others who receive Supplemental Security Income. The same COLA also applies to 2.5 million federal retirees and 4 million disabled vets.
If you look at the COLA in a vacuum, it may not look like this is actually a problem. Since the Social Security COLA is pegged to inflation, and there was no inflation in the last year, Social Security payments staying the same shouldn’t be an issue.
The reason that flat Social Security benefits are a problem is that while the government’s measurement of inflation hasn’t increased, other sources show that the real cost of living has increased. According to USA Today, AARP says that the consumer price index doesn’t apply to seniors and retirees the same way it does to younger people. While low gas prices benefit working individuals, AARP says that retirees spend the bulk of their money on food, housing, and health care.
USA Today reports that those three items all increased last year. According to figures from the Labor Department, food prices went up 1.6 percent, housing costs went up 3.7 percent, and the price of medical care went up 2.4 percent.
— Michelle Coffey (@m_cof) October 15, 2015
Since people who depend on Social Security spend a disproportionate amount of their budget on services and goods that have actually increased in price, the fact that gas and other items fell or remained stagnant doesn’t do them very much good.
The Wall Street Journal reports that the lack of a COLA for 2016 also affects Medicare. While the fact that there was no COLA means that about 70 percent of Medicare benificiaries won’t see an increase to the cost of their premiums, the other 30 percent will face an increase of about 52 percent.
Do you think it’s right to peg Social Security increases to inflation, like we’ve done since the 1970s?
[Photo Credit: Karin Hildebrand Lau/Shutterstock]