Tips for Social Security recipients worried about no COLA for 2016

Social Security recipients worried about the news Thursday that there will be no cost-of-living-adjustment for 2016 have a lot to think about — especially those of whom could see their Medicare premiums jump 52%. So what might they consider doing?

•Cut back spending. Inflation over the past year, as measured by Consumer Price Index for All Urban Consumers (CPI-U), was 0%, according to the Bureau of Labor Statistics. But that was due largely to the 18.4% decline in energy prices. Other costs, however, were up: Food was up 1.6%; shelter, 3.2%; and medical care, 2.4%. That means Social Security recipients might have to search for ways to cut back to balance their budgets. At the moment, according to the BLS' consumer expenditure survey, housing represents 33.9% of annual expenses for households over age 65; transportation, 15.9%; health care, 13.4%; and food, 12.5%.

Given that housing represents more than one-third of expenses, older Americans might look for ways to free up the equity in their homes by downsizing or taking out a reverse mortgage, or find ways to cut their housing costs by exploring such options as home-sharing.

•Increase income. On average, older Americans get about 34% of their total income from Social Security; 33% from earnings; 11% from personal assets such as money in IRAs, 401(k) plans and taxable accounts, and 22% from pensions. Given that there won't be a Social Security COLA, beneficiaries might need to consider ways to boost income. They could invest more aggressively in higher-yielding and perhaps more risky assets, such as long-term bonds and high-dividend-paying stocks; go back to work; or work more hours.

•Take solace in this fact. "Had there been a COLA increase, much of it would have been eroded by the Medicare Part B premium increase that the other 30% of beneficiaries now have to bear entirely — and many of them may be only slightly better off than you are," says David Mendels, director of financial planning at Creative Financial Concepts, in New York City.

•Write your representative in Congress. If you are among the 30% of Medicare beneficiaries who will pay a higher Medicare Part B premium, write your representative. "Since it is only past earnings that threw you into the 'fortunate' 30% (due to your income or other factors), there is nothing you can do to change that now," says Mendels. "If you are truly fortunate enough to be able to absorb the increase, be grateful. If you are not quite that fortunate, then be noisy, because that is the only way you can change it."

"Research any and all political candidates' positions on Social Security and Medicare benefits and vote/lobby/rally accordingly," says Francine Lipman, a professor at the University of Nevada-Las Vegas.

•Change the index used to calculate COLA. Lawmakers and policy wonks want the Social Security Administration to calculate the COLA using CPI-E, an experimental inflation index designed to measure cost of living for the elderly, instead of the CPI-W, which is now used to calculate Social Security COLAs. CPI-W critics contend the index currently used for the Social Security COLA does not reflect the spending patterns of older Americans, and therefore understates inflation, according to a forthcoming study by Alicia Munnell and Anqi Chen of the Center of Retirement Research at Boston College.

•It's not all bad news. For those still working, Social Security's tax rate stays the same at 7.65% for employees, 15.3% for the self-employed, says Andy Landis, author of Social Security: The Inside Story. So does the taxable earnings ceiling of $118,500. "If you're working and getting Social Security while under 66, note that the countable earnings threshold of $15,720 also stays the same in 2016," Landis says.

•Start/stop Social Security benefits. Rob Kron, head of investment and retirement education for BlackRock's U.S. Wealth Advisory group, suggests that you consider reinstating Social Security benefits for November 2015 through December 2015 if you have suspended collection. "In doing so, you may be able to avoid an increase in your Medicare Part B premium for 2016," he says.

According to Kron, if you reinstate benefits for November and December to avoid the Medicare premium increase, you can suspend benefits again beginning in January 2016. "The request to suspend benefits for January can be made at the same time as the request to reinstate benefits for November and December," he says. "To suspend benefits for January, the request must be made before Dec. 31, 2015."