Posted on 10/10/2015 2:02:00 AM PDT by JoeProBono
The annual cost - of - living adjustment (COLA) to Social Security benefits will likely be zero in January 2016.
The COLA will be announced on Oct. 15, when the last data required to compute it becomes available. But the data already suggest that prices have fallen over the past 12 months, removing the need for an adjustment. If prices have fallen but the COLA is zero, the purchasing power of Social Security benefits would increase.
The Social Security Administration determines the COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) compiled by the Bureau of Labor Statistics. This index is different from the Consumer Price Index for all Urban Consumers (CPI-U), which is the widely reported measure of inflation. Most years, the two indexes track each other closely, but not this year. In the 12 months to August 2015, the CPI-W fell 0.3 percent, but the CPI-U increased 0.2 percent. The falling price of motor fuel had a larger impact on the CPI-W than on the CPI-U, causing the disparity. With small overall changes in the indexes this year, this difference matters.
We expect that once the final data are released, the change in the CPI-W will be negative and the COLA will be zero. When prices drop, the law stipulates that the COLA should be zero. This happened in 2010 and 2011 (see chart).
Does COLA compensate retirees adequately?
The intent of the automatic COLA is to compensate Social Security recipients when the purchasing power of their benefits falls due to rising prices. If prices fall, on the other hand, the purchasing power of benefits increases, making a zero COLA more than sufficient. But is CPI-W, the index that underlies the COLA, the right measure of the prices faced by retirees?
The CPI-W reflects the prices of goods and services purchased by a typical household of urban wage earners. This demographic covers about 28 percent of total U.S. population. In the past 12 months, these prices have dropped, driven mainly by falling energy costs. Over this period, gasoline prices fell more than 20 percent and energy costs overall fell 15 percent.
Retirees have different spending patterns than urban wage earners. For example, they consume more medical care but spend less on education and gasoline than urban wage earners. In an ideal world, the Social Security COLA would be based on an index that reflects the spending pattern of retirees. Such an index does not exist.
The closest we can come is an experimental Consumer Price Index for Americans 62 year of Age and Older (CPI-E), which the BLS has compiled since the early 1980s. This demographic group does not match retirees exactly, since many people in their 60s still work. In the 12 months to August, the CPI-E increased 0.65 percent. If we take this as an approximation of the price increase faced by retirees, a zero COLA would not fully compensate them. In the past, the COLA fell short of the change in the CPI-E in some years and exceeded it in others.
There is yet another way to look at prices that are relevant for Social Security recipients. Imagine a person who relies on Social Security benefits to cover only daily expenses – food, utilities, phone bill, cleaning supplies, gasoline, prescription drugs, and the like. Other major expenses (such as housing, major purchases, a car, etc.) are taken care of from some other source. The house might be paid off, eliminating monthly mortgage payments. For such a person, the purchasing power of Social Security benefits depends on how much the prices of everyday goods and services changed over the year. AIER has a measure that reflects this – the Everyday Price Index (EPI).
Over the 12 months to August, the EPI fell 2.8 percent, driven mainly by the fall in fuel prices. Using this measure, a zero COLA would more than compensate people who use Social Security benefits to cover the costs of everyday products...................
Unlike the weekly fairy tale jobs news this news was “EXPECTED”.
Wow, has any of you other retired folks noticed that rents went up over 12%, food has gone up about at least 5% even counting the outrageous prices of meat and eggs. How about the cost of clothes, 5%. What the hell are they calculating this inflation on anyway - farm tractors? Can’t figure out there reasoning even after searching on the internet.
I think that this administration is trying to save money on the backs of the retired for their own benefit...geez!
Post-millenium generation reaction
This is going to be an important test of just how powerful, or at least how dedicated to the welfare of their members, AARP and the Seniors’ lobby still is.
If they can’t push through a decent COLA in what’s supposed to became booming, full employment economy, there’s no way they can put up a decent fight on what’s coming their way with Social Security and Medicare insolvency, as well as the nastier provisions of Obamacare.
Heh, actually I expect to do just that, unfortunately, it will be most likely due to the Government than illness. I do await my expiration date - waiting for the last Social Security check ya know..heh. I expect it will be soon and actually understand it as Government over promised and under delivered. Heaven help the current generation and any future generations.
Have not use Medicare yet and hope never to use it so I’m doing my part to help the future generations...
Hey, not a problem except for the retired! The Government that provides the benefits will adjust the amounts according to their own methods, hmmm. Sounds like a find job to me..
Anyway, we continue to survive and vote so maybe we have a chance of living a bit longer but sometimes I think that this is not a good thing as it deprives the younger generation so take that for what it’s worth.
If I just thought that the younger generation was worth the effort...oh well, maybe they always seen so ignorant.
They're through the roof too!
Heh, well I could not think of anything outrageous other than that, sorry...
Well, I just want the Government to be honest and fair. I don’t want them to adjust anything that is not there but it seems lately (this administration) that they keep fudging the numbers to make them what will be best for them.
Not a member of AARP (and never will be) but they do have political power I admit. Booming, full employment economy, who are you kidding? We have 90 million folks looking for work and can’t get it and a large portion of those working part time. That is what the AARP should be pushing.
A new announcement claims Medicare premiums will increase this year by 50% as Social Security cola remains static . No doubt zer0 needs the extra bucks to prop up his failing un-affordable health care ruse .
Is that your Grandfather? He is someones Grandfather...
WHAT TOOK HER SO LONG?
“Expect no cost-of-living adjustment to Social Security in 2016”
Of course not, since we have to pay out benefits for all of Obama’s illegal friends
Ha yeah, no money for COLA, but your friendly government death panel would like to review your medical records...
No COLA for the peons, but government and federal workers will get their yearly 3% raise, no doubt!
Unless, of course, you are black, hispanic, queer or on welare.
There goes that Bayliner I had my eye on.
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