First off, if you were counting on getting a few extra dollars in your Social Security checks during 2016, you might want to re-think that. The general opinion of the experts, including the trustees, is senior citizens will not see a cost-of-living (COLA) in 2016. Here’s why this might be true.
The Government Executive website reported, ‘The Bureau of Labor Statistics on Friday released another data point that provides a glimpse into the potential cost-of-living increase for federal retirees in 2016, and it doesn’t bode well’. According to Eileen Ambrose in her AARP Blog: ‘Nearly 60 million Social Security recipients will probably not get a cost-of-living increase next year, according to projections in the 2015 Social Security and Medicare trustees report”.
Jennie L. Phipps wrote in in her Bankrate.com blog that, ‘Social Security doesn’t expect to pay any cost-of-living adjustment, or COLA, to beneficiaries in 2016 because inflation hasn’t been high enough to justify it’. She pointed out page 144 in a report issued by the Social Security Trustees last week that made it pretty clear they see no COLA in 2016.
So what about the health of Social Security?
Also, on July 23, 2015 the OASDI Trustees Report for Social Security was released. Here are some of the highlights (or lowlights as the case may be!):
The combined OASDI Trust Fund is forecasted to be exhausted in 2034, one year later than projected last year. At that point, FICA tax income will be sufficient to pay 79% of promised benefits if nothing is done to fix this problem.
According to chief actuary Steven Goss, factors that led to this small improvement include (1) faster growth in average wages in the future, because of slower growth in employees’ private health insurance cost—due at least in part to provisions of the Affordable Care Act, and (2) improvements in how Trustees project the earnings of American workers by age.
In order for the retirement program to remain fully solvent over the next 75 years without ANY changes to the program, Congress would need to raise the payroll tax rate by 2.62 percentage points to 15.02% from its current level of 12.4% or reduce benefits by 16.4% to current and future beneficiaries or by 19.6% for people who become eligible for benefits in 2015 or later. These increases ignore the current Medicare tax on payroll of 2.9%.
There are other potential fixes such as gradually raising the early retirement age from 62 to 64 and the full retirement age from 66/67 to 69 and the oldest to begin collecting from age 72 (for 8% annual delayed credits). It makes sense if you consider that when Social Security started back in 1935, the average life expectancy was 65 years old. Today it is in the mid 80’s and in 20-25 years it will be almost age 90.
The Social Security Disability Insurance fund is still projected to deplete its reserves late in 2016. LATE 2016!! After that, the income collected through taxes will be enough to pay only 81 percent of the scheduled benefits. President Obama has proposed temporarily reallocating more of the total Social Security payroll tax rate to the disability fund to give Congress more time to consider comprehensive changes to the Social Security program as a whole. This is a band-aid (which takes from the retirement fund) and not a fix.
I think the government should move to fix all of the fraud in the system – people getting disability checks when they shouldn’t be getting benefits. This fraud is extremely prevalent and very costly to those who really need the help.
All the best… Mark