Social Security benefits don't rise for 2016: how to cope
Americans have largely benefited from a long spell of low inflation, but Social Security recipients are seeing the downside: They learned Thursday that benefits will not receive a cost-of-living adjustment, or COLA, for 2016.
That鈥檚 a substantial hit for the some 80 million people who receive benefits each month, and who have traditionally been able to count on an annual rise in their benefit amount.
This marks only the third time in 40 years that the government has held Social Security benefits flat 鈥� and all three instances have occurred since 2010.
鈥淣o COLA increases may not sound like a big deal to a lot of people. But when Social Security is the largest piece of someone鈥檚 income, it becomes a very big deal,鈥� says Germi Cloud, a national Social Security advisor for Cloud Financial in Huntsville, Alabama.
If you鈥檙e among the affected, here鈥檚 what you need to know.
COLA tied to inflation
The government ties changes in the cost of living to the Department of Labor鈥檚 Consumer Price Index, which hasn鈥檛 risen since the last cost-of-living adjustment in 2015.
鈥淎s a result, your SSI benefit rate and, for most people, your Social Security benefit amount will stay the same in 2016,鈥� Jim Borland, assistant deputy commissioner of communications for the SSA, wrote in a聽聽announcing the decision.
The CPI actually聽聽in September, according to the U.S. Bureau of Labor Statistics. One driver: falling gas prices.
Unfortunately, lower fuel costs often fail to have a significant impact on many retirees, who don鈥檛 drive frequently. At the same time, other expenses have experienced slight inflation, which means Social Security beneficiaries may suffer from a higher cost of living despite receiving no adjustment.
Now鈥檚 the time to review your budget
鈥淓ven if there isn鈥檛 an immediate financial impact, just knowing there will be no COLA can make people feel like they鈥檙e losing control of their finances,鈥� Cloud says.
The best way to get back in control: If you don鈥檛 have a budget, this is the push you needed to聽. Just that small step can make you feel more confident going forward. If you already have a budget, take some time to revisit it.
Consider other sources of income
Many Social Security recipients are unable to work, but those who can should consider doing so if they can鈥檛 wrap their budgets around a stagnant benefit. The government has a website dedicated to聽.
Other creative ways to increase income include taking in a roommate, renting portions of your home through a service like Airbnb, pet sitting through a site like DogVacay and selling household items you no longer want or use. Then there鈥檚 a聽, which isn鈥檛 right for everyone but can provide some much-needed cash flow in certain circumstances.
Don鈥檛 wait to cut spending
The good news is this announcement comes with some notice, which means you have time to gradually ease into what might be a significant lifestyle adjustment.
鈥淲hen you actually look at the long-term effects, it can be staggering,鈥� Cloud says. 鈥淔or example, if you have someone who has a $2,000 monthly benefit, a 2% COLA increase would be an extra $40 per month, which is almost $500 per year.鈥�
Taken as $500 a year, it can seem impossible to break even, but $40 a month seems much more manageable. If you鈥檝e made a new budget or you鈥檙e looking over an old one, see if there are places you can start to make cuts: Housing is the big one for many retirees, and if you鈥檝e been on the fence about downsizing, now might be the time. Food is another area from which many people can skim some fat, by starting to gradually work toward a lower grocery budget or putting a lid on eating out.
Finally, a small bright spot, at least for some people:聽聽may see their Part B premiums rise by as much as 52% next year, according to a report from the Center for Retirement Research at Boston College. But Social Security beneficiaries who have premiums deducted from their benefits are protected: A 鈥渉old harmless鈥� law keeps Medicare premium increases level with COLA increases for most retirees.
That means if there had been a COLA, much of it would have been swept up in the additional premium.
More from NerdWallet:
Arielle O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Email:aoshea@nerdwallet.com. Twitter:聽.
