For Mark Roberts’ Use: Have you heard the news about Social Security? Unlike most years, in which benefit checks increase slightly beginning in January, there won’t be a cost of living adjustment (COLA) for 2016. If you’re already drawing benefits, you’re probably feeling a bit disappointed. If you’re still planning for retirement, you should take this news as a cautionary tale about relying to heavily on Social Security to fund your retirement.

The point of COLA is to help offset inflation. Seniors living on a fixed income can be hurt by rising prices, so Social Security usually increases checks each January to help beneficiaries absorb the impact of inflation. However, for the third time in history, the Social Security Administration has announced that they won’t issue a COLA this year.

COLA is tied to the Consumer Price Index, which measures inflation by comparing the prices of various goods and services over time. In 2015, gas prices dropped dramatically, impacting the overall cost of living equation. The Index gives significant weight to gas prices, and so the inflation rate was measured near zero. That means that there appears to be no need for a COLA for Social Security benefits, even though gas prices might not affect you very much once you’ve retired.

However, while the Index gives considerable weight to gas prices, it does not give equal weight to the cost of health care. Most people saw their out-of-pocket health care expenditures rise about about 7 percent last year. Since health care is a concern faced more by older people and retirees, you might find that your own cost of living has increased even though officials claim that the inflation rate remained flat! On top of that, you might be one of the unlucky 30 percent of Medicare recipients who will see higher premiums this year.

The bottom line here is that even when the Consumer Price Index does not detect inflation, that means very little to the individual whose own cost of living can vary considerably from the norm. It is unwise to count upon Social Security issuing an annual COLA, even though that almost always happens. Remember, Social Security was intended to be a supplement for retirement income! Always plan ahead for a Plan B to cover rising expenses.

If you have more questions about Social Security, or need help structuring your retirement plan to account for inflation, give us a call and we will be happy to help.