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Social Security Benefits “Frozen” in 2016

Social Security benefits will not receive an inflation-adjustment increase for 2016. The announcement was made on October 15th via a press release from the Social Security Administration (SSA). According to the Social Security Act, cost-of-living adjustments (COLA) are not required if certain economic conditions occur:

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  The period of consideration includes the third quarter of the last year a cost-of-living adjustment (COLA) was made to the third quarter of the current year.  As determined by the Bureau of Labor Statistics, there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015.  Therefore, under existing law, there can be no COLA in 2016.

Basically, the benchmark that the SSA uses to measure inflation hasn’t changed over the last 12 months. Transportation costs – specifically gasoline – are one of the main components of the CPI-W index; the steady decline of gas prices over the last year offset changes to other components like food and healthcare costs, neutralizing the impact on inflation.

The biggest ripple effect from this announcement relates to the potential increase in premium costs for Medicare Part B. These premiums are usually deducted directly from Social Security benefits, and cover medical expenses such as doctor’s visits and outpatient services. A majority of Medicare recipients will likely see their premium costs remain the same. However, the following groups of people may see increases up to 52%:

– Retirees with high income (single = $85,000+ / married = $170,000+)

– New applicants for Medicare in 2016

– Individuals who are enrolled in Medicare but do not currently receive Social Security benefits (including those who elected to file-and-suspend).

This is only the third time since 1975 that Social Security benefits were not adjusted. The other two times were in 2010 and 2011. It is important to note that if a premium increase does occur for these select groups, it is not permanent. If a COLA adjustment is made for Social Security in 2017, it is likely that Medicare premiums will revert back to their standard cost range across the board.

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Will Goodson

Senior Financial Advisor

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