What to expect when you are expecting… a cost of living increase.

by | Sep 26, 2016 | News and Updates

No doubt about it. One of the best features of Social Security is the Cost of Living Adjustment or COLA. This past year came as a surprise for many as there was no COLA and thus no increase. Now I know what you are thinking that my grocery bill went up, my health care went up, my homeowner’s insurance went up. In fact, most things did increase in price, but what you actually pay has little to do with how the COLA is figured. COLA is based on what is known as CPI-W or Consumer Price Index for Urban workers. This index is very beneficial for the government to use as it is below CPI as a whole and it does impact retirees income. In fact, some experts estimate that Seniors have lost 23% of their purchasing power since 2000. This is not good news for retirees. To add to the pain medicare premiums have increased for some too and are expected to continue to increase above the COLA. For retirees, that means less in your pocket. There is a little good news for those currently receiving benefits. The law provides some protection for you. If there is no cost of living increase, the premiums for those who are receiving benefits does not increase. This does not apply to those that have chosen to delay benefits. Now this might seem like taking benefits earlier might be a good move. In reality, it does not. You trade off the increase of 8% increase per year delayed for a short term gain in income. Also when COLA’s are reinstituted you play catch up until you pay the same as those that had the initial increase. The last time this happened, retirees were back to the same level in three years. So imagine you made an emotional decision without evaluating the long-term effect on your income. Now for the rest of your life, you get less money, all to get a short term gain for a couple of years. So why the bad news? My goal with education is to keep you from making mistakes that way too many people make. In  this case, we may have another year with no COLA and while that is not the best situation, I hope that you will look at the long-term picture and make an educated decision based on the facts and your long term income. If you have questions give us a call. We are here to help.

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