As had been rumored, there will not be any increase to the Social Security benefits in 2016. A report from the Labor Department confirmed this today.
This is one of the downsides of a low inflation environment; those on a fixed income can suffer. The primary reason cited for low inflation is the dramatic decline in the costs of oil and gas. The irony is that seniors, those who are the primary recipients of Social Security benefits, are the least likely to drive and spend significantly on gasoline.
The Labor Department determines what the adjustment to the benefits will be based upon the change in the Consumer Price Index year over year. More specifically, the Labor Department looks at a particular time frame and compares that year-over-year. If there is a significant increase, then Social Security beneficiaries see an increase in their benefits in the subsequent year. When there isn’t a significant increase, benefit changes are smaller. This year, again, primarily due to changes in fuel, the CPI was down%. As such, the Labor Department has elected not to increase benefits next year.
This not the first time that there has not been an increase in the annual benefits. Recently, in 2010 and 2011, there were no increases either, Increases in the past few years have been modest as well. In 2015, the benefits increased by 1.7%. In 2014, the cost-of-living adjustment was 1.5% and in 2013 it was 1.7%. These are very small increases.
For example, if you were receiving $1500 per month in Social Security benefits in 2009, your benefits would have been adjusted by the cost of living each year. Since the increases were modest each year, your Social Security benefits would not have increased all that much. Including 2016 when there will be no adjustment, that $1500 monthly Social Security check from 2019 would increase to $1601.47 through the end of 2016. That’s less than a 1% annualized growth rate for that 7 year period.
It is increasingly becoming more difficult to rely on outside parties to take care of your retirement. You need to plan for your retirement yourself. Pay yourself first. Put money aside for your future. Investing the money in the stock market will likely produce significant long-term growth, far exceeding most any other investments.
If you have a long term horizon, your money will compound. If you can put $300 into an S&P 500 index fund every month for 40 years, you will have one million dollars. Start when you are young, be diligent. Save as much as you can. Many people invest money into their employer’s 401(k) retirement plan. That’s an excellent idea; the money gets automatically deducted from your paycheck and invested for you. If you are lucky, your employer may match a portion of your investments as well. Don’t expect anyone else to help you with your retirement. Employer matches and Social Security benefits should be the icing on your retirement cake, not the cake itself.
Some think that Social Security won’t be there at all to help them when they retire. I’m not going to dispute that opinion, nor will I support it. Regardless, the money that you receive from Social Security likely will not provide you will enough cash to reasonably fund your retirement. You need to take matters into your own hands.