Because the Social Security Administration has announced that there will be no cost-of-living allowance increase in 2016 for beneficiaries, people socking money away in their 401(k)s will find themselves unable to raise their contributions — even if they can.
This is only the third time in 40 years that there hasn’t been a COLA — the other two were in 2010 and 2011 — since the automatic increase system went into effect in 1975.
And it’s going to hurt more than current retirees.
Even some pre-retirees will be paying the price: the legal limits for contributions to defined contribution plans won’t be increasing either, which means defined contribution participants will have less money at retirement than if the COLA allows for a boost in contributions.
The 2015 limit is $18,000 for people under 50 years of age, while those over 50 are allowed an additional catch-up contribution of $6,000.
With the CPI keeping Social Security flat, neither of those contribution limits will rise.
Of course, it’s not likely to affect all that many people, since few manage to contribute the maximum each year and many people save nothing at all.
But it’s still going to hurt, in the long run.