Word from the Social Security Administration that there’ll be no inflation adjustment in 2016 is causing shock and disbelief among the nearly 60 million Americans who now collect benefits. After all, many retirees — along with the disabled and other beneficiaries — are struggling to make ends meet.
“This is no small matter. The purpose of the annual adjustments is to ensure that Social Security benefits don’t lose value over time. They are intended to keep seniors and other beneficiaries afloat, to allow them to tread water. But they are not floating; they are sinking,” says Nancy Altman, co-director of Social Security Works, a nonprofit advocacy group (www.socialsecurityworks.org).
Right now, the cost of living for Social Security is measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is calculated by the Bureau of Labor Statistics.
A zero inflation adjustment happened just twice before: in 2010 and 2011. Why no automatic adjustment for 2016? Because the index used by the government to calculate increases was affected by the decline in gas prices. But advocates say that medical costs—which hit seniors harder than younger people—have risen dramatically.
“Seniors and people with disabilities spend more on health care and long-term care—where prices rise faster —and less on clothing, recreation, and other items where prices tend to rise more slowly than for younger, healthier Americans,” Altman says.
“There’s a strong case to be made that seniors experience higher inflation than the rest of us. Besides higher medical costs, many also pay for more services — like landscapers to care for their yard or a podiatrist to cut their toenails,” says Andy Landis, author of “Social Security: The Inside Story,” a soon-to-be-updated guide.
Advocates for seniors, including the AARP, have pushed for a substitute index that better reflects the higher costs for medical care that older people face. Still, ideas for changing the cost-of-living index are hotly contested in Congress.
Indeed, the Bipartisan Budget Act of 2015 signed into law by President Obama just a few days ago — phases out a couple of controversial “advanced claiming strategies” that have allowed savvy seniors to boost their benefits.
The new rules apply to such tactics as “file and-suspend” and “restricted application for spousal benefits.” These have been especially useful to dual-income households seeking to maximize their benefits.
Critics of these filing strategies, such as Dr. Alicia Munnell of Boston College, say they’re “loopholes” that favor relatively wealthy people. But backers—including Dr. Laurence J. Kotlikoff, of Boston University—say people at all income levels have used these tactics to advantage.
“These are not loopholes. These are life jackets for many people,” Kotlikoff says.
Here are a few pointers:
• Get a handle on your Social Security benefits.
Personal finance experts recommend that those approaching retirement closely monitor their records by creating an online account with the Social Security Administration (simply go to www.socialsecurity.gov). With this account, you can track your earnings record, along with the estimated taxes that you—and your employers—have paid for Social Security (and Medicare) through your career.
Alternatively, you can obtain information on your benefits by calling 800-772-1213 or by visiting a Social Security Administration office.
“The more you know about your Social Security, the better decisions you can make,” Landis says.
• Try to delay taking benefits to get more.
Many people begin collecting at 62, the earliest that those of current retirement age can claim benefits. But the longer you wait — through age 70 — the more you’ll receive as a monthly benefit for the rest of your life. Assuming you’re in good health and can afford to wait to start collecting, financial planners urge you to do so because you’ll likely receive more that way.
“If you take Social Security early, you’re betting you’ll be short-lived,” Landis says.
• Find out if an “advanced claiming strategy” could still work for you.
Under the new law, such tactics as “file and suspend” will soon be phased out. But assuming that your household circumstances—including birthdates—are right, you might still be able to take advantage of one of these benefit enhancers.
To find out, Landis recommends you consult a free online Social Security benefits calculator. One is available through AARP (www.aarp.org) and another from investment firm T. Rowe Price: www.troweprice.com. (These free calculators will soon be updated to reflect the new rules.)
“Social Security is a hugely complicated system. But those who understand it can receive thousands of dollars more over their lifetime,” Landis says.