3 Benefits To Not Giving Social Security Recipients A Raise

Nothing about Social Security is ever simple, is it?

For the third time since 2010, Social Security recipients won't be getting a cost of living adjustment in 2016, according to a blog post by Jim Borland, assistant deputy commissioner for Social Security communications. While on the surface, that seems like something to get up in arms over. But in fact here are three reasons why it's not the end of the world.

1. Prevailing logic says most won't feel the pinch.

By law, the monthly Social Security and SSI federal benefit rate increases when there is a rise in the cost of living. The government measures changes in the cost of living through the Department of Labor’s Consumer Price Index. When inflation stays at the same rate, your cost of living also stays the same, wrote Borland.

So basically, prices for goods and services, on average, haven’t increased enough to affect the COLA -- but there is one potential rub. One of the key elements in determining the CPI is the price of gasoline. Gas prices have been lower lately, thus reducing the CPI overall. But many retirees don't drive all that much, so a fill-up isn't a big item on their budget. It's great that it went down, but it doesn't impact them all that much. For them, the other goods and services they depend on likely have gone up in price. That's the bad part.

Plus, the people who will feel the impact of this most are those for whom Social Security is the only or the largest source of their monthly income. Social Security benefits represent about 39 percent of the income of the elderly overall, but 47 percent of elderly unmarried people rely on Social Security for 90 percent or more of their income. They will feel this.

The poorest among us will be hit the hardest. For someone who collects a $2,000 monthly benefit, a 2 percent COLA increase would be an extra $40 per month -- or almost $500 per year.

2. No COLA means no raise in Social Security taxes for workers.

The good news for younger workers is that since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts. These amounts will remain unchanged in 2016.

3. No COLA will mean no Medicare Part B premium hike for about 70 percent.

This is a bright spot for about 70 percent of Medicare Part B recipients. Those are the folks who have their premiums paid directly from Social Security. The law contains a hold-harmless provision that limits the dollar increase in the Medicare Part B premium to the dollar increase in an individual’s Social Security benefit. Because the COLA for Social Security benefits is going to be zero for 2016, premiums would not increase for the 70 percent protected by the hold harmless provision.

Good news for them. Not good news for the other 30 percent, for whom Medicare Part B premiums could jump more than 50 percent next year, according to a report from Boston College's Center Center for Retirement Research. Expect the outcry to be loud and swift.

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