Image: SSA Office of the Inspector General.
This article was updated on March 14, 2016.
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 metrics the government works with, Social Security benefits are indexed 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 whether there will be an upward adjustment to Social Security payments in the following year. That's because the Social Security Administration 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.
When the results from July, August, and September became available, the verdict was in: There would not be any cost-of-living adjustment for Social Security in 2016. The figures for both July and August were about 0.3% below where they were last year, and September's 0.3% decline made it official that the average for this year would be less than in 2014. As a result, the cost-of-living adjustment evaporated for 2016, leaving Social Security recipients getting exactly the same amount that they received in 2015.
Image: SSA.
A history of low COLAs
Unfortunately, retirees have had to settle for 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%.
The fact that Social Security recipients didn't get any increase in 2016 isn't unprecedented. 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, without the benefit of a key provision in Medicare, some retirees' monthly checks might have declined in 2016. Many Social Security recipients have Medicare premiums taken out of their monthly payments, and those premiums were slated to rise substantially. However, what's known as the hold-harmless provision in Medicare prevented those increases from eating into Social Security checks for those participants that it covered.
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 extraordinary measures like special legislation make changes to the normal formula for determining cost-of-living adjustments, retirees will have to get used to the idea that their monthly Social Security benefits aren't going to rise until 2017 at the earliest.
