Social Security COLA is 0.0% for 2016

[Roland Slugg]

On October 15, 2015, the Social Security Administration (SSA) announced that there will be no COLA for Social Security benefits and SSI payments in the year 2016. According to the SSA the CPI actually decreased during the measurement period, but the law prevents social security benefits from being reduced ... i.e. there is no "negative" COLA.

Since there will be no increase in social security benefits, the wage limit for the social security tax will not increase, either, and will remain at $118,500 in 2016, the same as it has been during 2015.

With social security remaining the same there will also be no increase in 2016 in the Medicare Part B premium paid by most people covered by Medicare. Individuals who received social security benefits during 2015 and who are covered by Medicare Part B will see no change in their premiums unless they are subject to higher premiums due to their income level.

[taxea]

Apparently the COLA is based on the price of gasoline. Really, what about those taxpayers who don't drive and collect SSB? Weren't they getting COLA in years past? Doesn't make sense to me.

[JohnH]

This reminds me a bit of the years I lived in a condo and served on the board. We always broke the budget down by category/by unit/by month. Invariably, someone at the annual meeting would always protest that since they don't use the pool, their dues should be reduced by the amount shown in the "Pool Maintenance category.

It isn't correct to say that the COLA is based on gasoline prices. The COLA is derived from the CPI, which is based on a "market basket" of over 200 items. However, there are arbitrary weights assigned to each, and gasoline does carry a heavy weight. So if one of the heavier-weighted items decreases, it cn affect the entire calculation. If that doesn't make sense, then a Statistics 101 class might be in order.

There is a very good Wikipedia article about the CPI, which the Bureau of Labor Statistics publishes. To be accurate, we should really refer the "CPI's", because there isn't just one CPI. (I'd post a link, but we can't do that on this forum any more). What I find interesting is which CPI is used by Social Security.

There is a CPI-E, which is the CPI for the elderly. The CPI-E is weighted more heavily in the "Medical Expense" category, among other things. No surprise there, as this 67-year-old can attest. However, the Social Security COLA is based on the CPI-W, which is the CPI for Urban Wage Workers and Clerical Employees. You might ask why this is so. It has less to do with reality and more to do with political & bureaucratic shenanigans, IMO. In spite of the fact that CPI-E is a bettter measure for the 24 per cent of the population to which it appplies, using the correct measure would force politicians to deal with the Social Security "problem" much quicker. In short, the system is already actuarily unsound thanks to poor planning on the part of our politicians.

And of course we have the forgotten issue of the original purpose of Social Security. It was never intended or designed as a "Retirement System" in and of itself. It was intended to serve as a "floor" or "safety net" for those who reached old age not having made provisions for their support when they could no longer work. Instead, the system has morphed into a program of entitlement, with a huge percentage of people retiring at the earliest possible age (62), in spite of the fact that their benefits are reduced by 25%, and even though they are often physically able to continue working. And then we hear the inevitable complaints that people "can't live on Social Security."

Here's an excerpt from the Wikipedia article.
=========================
Since at least 1982, the BLS has also computed a consumer price index for the elderly to account for the fact that the consumption patterns of seniors are different from those of younger people. For the BLS, "elderly" means that the reference person or a spouse is at least 62 years of age; approximately 24 percent of all consumer units meet this definition. Individuals in this group consume roughly double the amount of medical care as all consumers in CPI-U or employees in CPI-W.[4]

In January of each year, Social Security recipients receive a cost of living adjustment (COLA) "to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)".[5]

However, from December 1982 through December 2011, the all-items CPI-E rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for both the CPI-U and CPI-W.[4] This suggests that the elderly have been losing purchasing power at the rate of roughly 0.2 (=3.1–2.9) percentage points per year.
============================

[taxea]

John...I only posted gas prices as a reason because that was the reason given in a local news report on the COLA from SSA. Didn't make sense to me but that is what was reported.

[JohnH]

Yes, I understood that. I had seen a couple of other reports which took pretty much the same approach as the one you saw. Makes one wonder whether any news report is ever reliable, doesn't it? They report just enough facts to sensationalize the story, and they often miss the main point.

To me, the important point is that there is a more reliable measure of the true CPI for the affected population (CPI-E), but the government chooses a different one. No because there are logical reasons to do so but because the politicians risk exposing their own incompetence & short-sightedness as they pander to people to buy votes.

[TAXNJ]

No matter

Yes, I understood that. I had seen a couple of other reports which took pretty much the same approach as the one you saw. Makes one wonder whether any news report is ever reliable, doesn't it? They report just enough facts to sensationalize the story, and they often miss the main point.

To me, the important point is that there is a more reliable measure of the true CPI for the affected population (CPI-E), but the government chooses a different one. No because there are logical reasons to do so but because the politicians risk exposing their own incompetence & short-sightedness as they pander to people to buy votes.

Good reply posts by you and TAXEA. No matter the basis, it remains no social security increase and a Medicare increase for some unless congress acts.

Gas prices down and egg prices are up. Increase you can be sure of is federal and/or state/local taxes.

[JohnH]

It's my understanding that Medicare premiums cannot increase more than the COLA. So with no COLA, the majority of SocSec recipients will not see an increase. The only exception is those SocSec recipients who pay a a means-tested Medicare premium. Currently they make up a small fraction of all SocSec recipients - something less than 10%. But the plan is to keep lowering the income threshhold, so by 2019 the number of people affected could be up to 25%.

.

[FEDUKE404]

Getting hit with higher Medicare premiums in 2016

It's my understanding that Medicare premiums cannot increase more than the COLA. So with no COLA, the majority of SocSec recipients will not see an increase. The only exception is those SocSec recipients who pay a a means-tested Medicare premium. They make up a small fraction of all SocSec recipients.

....

Kinda.

The way I've read the stories, IF a person is already collecting Soc Sec benefits and Medicare premiums are withheld, then no increase in Medicare premiums as no COLA increase for Soc Sec recipients. That scenario covers most Medicare B payers.

But those who are "new" to Medicare (such as those turning 65 in 2016 and not yet collecting Soc Sec), and the aforementioned means-tested folks, are fair game for the increase.

A friend will turn 65 YOA in mid-2016, and is choosing NOT to collect Soc Sec benefits until somewhere closer to age 70, so he expects to get whacked with the higher Medicare B premium rates from the gitgo.

There was recently a nice summary article in Kiplinger magazine on the subject, but since we cannot post any links you'll have to go looking for it yourself.

FE

[kathyc2]

Currently they make up a small fraction of all SocSec recipients - something less than 10%. But the plan is to keep lowering the income threshhold, so by 2019 the number of people affected could be up to 25%.

.

Threshold is not actually being lowered, but not inflation adjusted. According to Kaiser current paying the extra is 5% projected to increase to 9% by 2019 and 25% by 2036.

The 85/170K is along the same lines as the SS taxable floor of 25/32K which is not inflation adjusted and has been the same since the mid-80's when enacted.

[Y2KEA]

Good reply posts by you and TAXEA. No matter the basis, it remains no social security increase and a Medicare increase for some unless congress acts.

Gas prices down and egg prices are up. Increase you can be sure of is federal and/or state/local taxes.

And bacon prices up! Don't forget bacon.

[JohnH]

Threshold is not actually being lowered, but not inflation adjusted. According to Kaiser current paying the extra is 5% projected to increase to 9% by 2019 and 25% by 2036.

The 85/170K is along the same lines as the SS taxable floor of 25/32K which is not inflation adjusted and has been the same since the mid-80's when enacted.

Interesting.
I didn't know that's how it works - thanks for the info.
That's why we have this forum.
Hope I live long enough, and with enough income, to have to deal with the 25% "problem".

[kathyc2]

Interesting.
I didn't know that's how it works - thanks for the info.
That's why we have this forum.
Hope I live long enough, and with enough income, to have to deal with the 25% "problem".

It's not widely known- rare you hear about it on the news- that Part A is the only Medicare funded by payroll tax. Parts B and D are funded roughly by 25% premiums and 75% general funds. The general fund funding of these is around 250B a year.