Image: SSA Office of the Inspector General.
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Social Security supports millions of Americans in their retirement, and many of them depend on the program for the vast majority of their overall income. Yet even though retirees have had to make do with minimal cost-of-living increases in their benefits in recent years, early signs suggest the Social Security increase for 2016 could be smaller still -- or even disappear entirely.
What goes into calculating your Social Security increase for 2016
Like many of the numbers the government works with, the Social Security Administration indexes benefits to the rate of inflation. New payment rates take effect every January for retirees and other Social Security recipients.
You don't have to wait that long, however, to determine the number. Specifically, the SSA takes an average from the Consumer Price Index for July, August, and September. It then compares that average to the number from the previous year. The resulting percentage increase corresponds to the amount by which Social Security benefits are adjusted upward to reflect rising costs of living.
Obviously, inflation figures for the summer months are still a long way away. But if you look at April's CPI figures, you'll notice the index's current level is well over a full percentage point below the three-month average from 2014. This means that even if inflation rises at a more typical rate between now and September, it's unlikely to rise enough to catch up with the drop in the index over the past six months. As a result, the cost of living adjustment could evaporate, leaving Social Security recipients getting exactly the same amount in 2016 that they received this year.
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A history of low COLAs
Unfortunately, retirees have had to struggle with small cost of living adjustments for several years. The rise for 2015 was 1.7%, following an increase of 1.5% in 2014 and 1.7% in 2013. Only in 2012 did Social Security recipients collect what seemed like a sizable bump in their monthly checks, a cost of living adjustment amounting to 3.6%.
Even if Social Security recipients don't get any increase in 2016, it wouldn't be an unprecedented event for the program. In both 2010 and 2011, the SSA made no changes to overall benefit payments, as dramatic declines in prices kept the inflation rate negative during both years.
Indeed, some retirees' monthly checks mightdecline in 2016 if prices keep up this behavior. Many Social Security recipients have Medicare premiums taken out of their monthly payments, and if those premiums rise, it could result in smaller net amounts being paid to retirees. Many retirees faced this situation in 2010 and 2011.
Be ready for no Social Security increase in 2016
The only silver lining in a year in which Social Security doesn't pay a COLA is that low inflation should -- at least theoretically -- be good for retirees. If price levels stay constant, then your money will keep going as far as it did in past years. That can make it easier to make ends meet on a fixed budget.
Many retirees, though, are convinced that the inflation figures on which Social Security cost of living adjustments are based don't reflect their actual expenses. With a different set of priorities than typical American adults, retirees can experience personal inflation rates far in excess of what government figures state.
Nevertheless, without full-blown Social Security reform, recipients are likely to endure an even more painful year of flat benefits than they have faced in recent years. Unless trends such as cheaper gas prices reverse themselves quickly, retirees will have to get used to the idea that their monthly Social Security benefits aren't likely to rise until 2017 at the earliest.
The article Why Your Social Security Increase for 2016 Will Probably Disappear originally appeared on Fool.com.
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