As a senior on limited income, it is a good thing for you when inflation is low and prices are not rising...isn't it? In general, yes, but there is a downside to extremely low inflation.
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Social Security checks are given a Cost-Of-Living adjustment (COLA) each year based on the overall rate of inflation. No inflation, no COLA increase — and that happened this year for just the third time in forty years. Thanks to the negligible inflation in 2015 as calculated by the Consumer Price Index (CPI), there will be no COLA increase in 2016 Social Security checks.
Seniors are understandably upset, especially those who are heavily or completely dependent on Social Security for their income. According to AARP, around half of all seniors count on Social Security for half of their income, and Social Security makes up at least 90% of the income for 25% of seniors.
It sounds reasonable that if there is no inflation, an increase should not matter, but inflation is calculated in a broad sense and does not necessarily correlate to the expenses of seniors. The CPI flattened mainly because of steep drops in gas prices. Other costs that are more important to seniors increased over the last year. Housing costs are up 3.7%, medical costs are up 2.4% and food prices rose by 1.6%. Prescription drugs have gone up by approximately 11%.
The medical costs are a major concern, as seniors spend about 15% of their income on medical-related expenses. For those 30% of Medicare beneficiaries who will see Part B premiums rise 52%, the lack of a COLA is a potentially health-threatening situation.
What can seniors do when faced with a year without a COLA?
- Review Expenses – You probably cannot do much to change your medical expenses except to keep up with healthy habits. It is at least worth reviewing your lifestyle to see if you can kill two birds with one stone. Cutting down on excessive smoking or drinking could decrease your medical costs and save money at the same time.
Look over other expenses to see where you can trim — eating out less often, cutting out one entertainment option per month, etc. The small things add up quickly.
- Review Assets – Do you have any assets you are not using that you might sell? Anything from knick-knacks and heirlooms to old coin collections could help. It is relatively easy to sell almost anything on eBay (NASDAQ:EBAY) these days.
You can also consider your largest asset — your home — and ways that you can free up your equity via a reverse mortgage, refinancing, or downsizing.
- Consider Other Short-Term Income – Look over any investments to see if you are being too conservative. Adjust your investments to riskier, higher-earning nest eggs if you can handle the increased chances of making a loss. Take advantage of any part-time work opportunities or consider more working hours if you are in semi-retirement.
- Start/Stop Your Benefits – If you have suspended benefits, consider reinstating them for November and December 2015 and suspending them again in January 2016. This trick can help you avoid a Medicare Part B increase. You can make both requests at the same time to avoid forgetting to restart your benefits.
- Make Your Voice Heard – Write to your Congressman to make sure that your voice is heard. It will not help you this year, but it is important to keep pushing for change.
For example, there is another inflation index known as CPI-E that is weighted to reflect the expenses of the elderly better. The CPI-E is still considered experimental, but it would represent inflation in a much better way as it relates to Social Security checks. Demand that the Social Security Administration switch to CPI-E for future COLA determinations.
It may be a rough 2016 for seniors, but with a little planning and trimming, you can ride it out as smoothly as possible. Cut where you can, but do not skimp on your health, and do not forget to make your point to your elected officials. A few changes at the legislative level could go a long way to helping seniors in the future.