Paycheck Chronicles

No Cost of Living Adjustment for 2016

The 2016 cost of living adjustment (COLA) for federal benefits will be zero for 2016.  This is because the index used to determine  military retirement, Department of Veterans Affairs (VA) disability payments, and social security shows that there has been no overall inflation since last September.  The dramatic decrease in the cost of gasoline has cancelled out all the other price increases, leaving a net negative Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  This is the third time of no increase since increases were made automatic in 1975.   Federal payments are received by about 80 million US residents each year, including retired and disabled workers and their families, disabled veterans, and federal retirees.

The short version of what I've just said:  no increase in military retirement, VA disability, or social security in 2016.

No Good For Seniors

The formula used to calculate COLAs isn't perfect because it uses data from families who make most of their income from wages.  It specifically excludes families who get most of their income from Social Security and pensions.  The families actually receiving federal benefits, typically retirees and the disabled, have different spending patterns than those currently working.  In particular, federal benefit recipients tend to spend less on gasoline (no commuting) and more on health care, where costs have been rising rapidly.  Unfortunately, the current economic trends mean that federal benefit recipients are actually spending more on their expenses, but they won't be getting an increase in benefits because costs haven't risen for the group that is polled for the calculations.

This is all the more frustrating because there actually IS a Consumer Price Index for the Elderly (CPI-E).  Wouldn't it make sense to increase payments to primarily older folks based upon an index that actually measures spending for the older.

The Good News

Now, I know there isn't a lot of good news in the fact that your monthly benefits won't be increasing next year.  However, there is a sliver of positive:  your monthly benefits won't go down.  Under federal law, payments remain the same even when there is negative inflation, like we are facing right now.

I wish I had better news about the COLA for 2016, because a lot of everyday expenses have gone up.  Unfortunately, the math doesn't support an increase at this time.

 

 

 

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