Q & A
Is it true that the 2016 COLA will be 0% or negative? A follow-up…How else will this affect you?
Complete Question: I keep hearing that we will have either no or negative COLA for 2016. Is that true or is it just media hype? Also, is it true that this is based on the low gas prices?
Answer: As promised in yesterday’s Q&A, I have obtained further information from the Bureau of Labor Statistics and the Social Security Administration. It should be no surprise by now that there will be no COLA increase in your 2016 benefit. When the September numbers came out, there was yet another decrease in the CPI-U. Even though the 12-month period ending August 2015 showed an increase, September’s decrease resulted in 0% change in CPI-U and a -0.6% change in CPI-W. As a reminder, negative changes in CPI-W, the official index that is used to determine COLA, results in no change in COLA.
As mentioned in yesterday’s posting, gasoline is not the only factor, but it did play a significant role. All energy components declined (e.g. gasoline, electricity, fuel oil, etc.) and they comprise 9.83% of the entire CPI-W index. Other goods and services that declined from September 2014 to September 2015 include dairy and related products; apparel; used cars and trucks; and airline fares. The reason why gasoline had such a significant impact despite its minimal percentage of the entire CPI is due to the extreme level of decrease as compared to other components showing small increases. For example, shelter, which comprises 31.33% of the CPI index only increased by 3.2%. This is compared to gasoline alone (not all energy components) declining by 29.5%. Therefore, even though the shelter component is much larger than the gasoline component of the CPI index, the vast difference in the shelter increase versus the gasoline decrease caused gasoline to have a larger impact on COLA.
So how else could this 0% COLA increase affect you? Surprisingly, there could be a positive side to it. The two major positive impacts that could affect you are:
- Do you have your Medicare premium deducted from your Social Security check and/or do not pay a higher Medicare premium because you are considered a “higher-income beneficiary”? If you are one of the 70% of Medicare beneficiaries who are do not fall under these categories and the Medicare premiums increase, you will be exempt from the increase. (Please note that Medicare premiums for 2016 have not yet been announced.)
- Are you working and paying Social Security taxes and have a six-figure income? The maximum taxable earnings limit of $118,500 will not increase in 2016.
Finally, do you anticipate the goods and services that declined over the past year to go back up again? As many media sources have pointed out, Social Security beneficiaries have already suffered through a 0% COLA increase for not one, but two years in a row – 2010 and 2011. However, the following year they received the highest COLA since 2010 – 3.6%.
So even though this may not be the ideal situation, try to take advantage of it through travel and maxing out those earnings!
C.J. Miles, MSA, MBAHCM
Research Analyst & Social Security Advisor
AMAC Foundation