The Social Security Administration recently announced that there is no cost-of-living adjustment in 2016.
This means there will be no increase in the Social Security disability and Supplemental Security Income benefits in 2016.
This news affects millions of Americans who rely on Social Security benefits, with the vast majority being retirees and their families.
Here, we talk about what you can do to protect yourself financially in 2016.
First, let’s begin by explaining a cost-of-living adjustment.
What is a Cost-of-Living Adjustment (COLA)?
Legislation enacted in 1973 provides for cost-of-living adjustments, or COLAs.
With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep up with inflation.
In over 40 years, this is only the third time there has been no increase in the cost-of-living adjustment. 2010 and 2011 were other years when there was no COLA increase.
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective.
If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.
Who Does the Cost-of-Living Adjustment affect?
Almost 60 million retirees, workers with disabilities, spouses and children get Social Security benefits. The average monthly payment is $1,224.
The COLA also affects benefits for about four million veterans with disabilities, 2.5 million federal retirees and their survivors, and more than eight million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security.
No cost-of-living adjustment increase also means older people could face higher health care costs.
This is because most have their Medicare Part B premiums for outpatient care deducted directly from their Social Security payments, and the annual cost-of-living increase is usually enough to cover any rise in premiums.
When an increase doesn’t happen, a long-standing federal “hold harmless” law protects the majority of beneficiaries from having their Social Security payments reduced.
However, it still leaves about 30 percent of Medicare beneficiaries who have to pay the premium increase.
What Can You do to Ensure You’re Protected Financially?
If the amount of Social Security disability benefits amount you and your family are eligible to receive in 2016 will not be enough to cover your essential living expenses you should talk to your employer about a group disability benefits plan or buy an individual disability benefits plan.
A private disability insurance benefits plan can help cover any gaps in your 2016 Social Security benefits amount, allowing you financial security to pay bills like your mortgage, car payments, and utilities.
Be sure to fully understand your disability benefits coverage. This is where an insurance agent can be a valuable resource. They can carefully explain the definition of disability in your policy, list the specific terms and conditions, and guide your decision around which private disability benefits plan is right for you.