How Much Will Social Security Benefits Go Up in 2017?

By Dan Caplinger Markets Fool.com

Tens of millions of Americans rely on Social Security for a large chunk of their income in retirement, and many of them look forward to the cost-of-living increases in their monthly benefits they typically receive at the beginning of each year. 2016 was an exception to that rule, because Social Security didn't make any cost-of-living increase at all. 2017 will be better for Social Security recipients, but the 0.3% increase that they'll get will amount to just a $4 to $5 increase for the typical retiree. Let's look more closely at why Social Security will once again fall short of the hopes that participants had for more impressive benefit increases in 2017.

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Why Social Security's 2017 cost-of-living increase will be so low

The culprit for the tiny cost-of-living increase for Social Security benefits in 2017 is a general lack of inflation. In order to calculate adjustments due to cost-of-living changes each year, the Social Security Administration turns to a specific measure of inflation known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W for short. Specifically, the SSA takes the CPI-W figures for July, August, and September and finds the average of the three monthly figures. It then compares that average to the corresponding average for the July-to-September period in the previous year.

In calculating the cost-of-living increase for 2016, the SSA's calculations found that the CPI-W average had actually decreased from the prior year's figures, going from 234.242 to 233.278. Social Security benefits can't go down by law, so recipients simply got no adjustment at all.

This year's figures showed a renewal of upward price pressures on the CPI-W, which averaged 235.057 during the period from July to September. However, the fact that Social Security recipients didn't get a decrease in benefits in 2016 came with a trade-off: The inflation index had to make up its lost ground before any further increases for 2017 would be considered. Therefore, even though the CPI-W average had gone up by 0.8% from the previous year, most of that increase was used up just getting back to even from the previous year's decline. As a result, Social Security recipients will get just a 0.3% cost-of-living increase in 2017.

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What Social Security's small increase means for actual retirees

The SSA also provided estimated average benefits for typical recipients in 2017. For all retired workers on average, the increase will boost monthly checks by $5 to $1,360. For married couples, average total benefits will rise $6 per month to $2,260. Surviving spouses will get a $4 increase to an average of $1,300 per month.

Cost-of-living increases also affect other types of benefits. A surviving parent with two children will see benefits rise $9 to $2,695 per month. Disabled workers will see similarly small increases, ranging from $4 for the average disabled worker to $6 for disabled workers with a spouse and one or more children.

Will cost-of-living increases for Social Security ever be big again?

If small cost-of-living increases were just a one-time phenomenon, they might not be so bad for retirees to handle. However, Social Security hasn't seen very large annual boosts to benefits for a long time. The chart below shows that over the past eight years, there's been only one year in which benefits rose by more than 2% -- and that followed a period of two consecutive years of no increase at all.

Year

Cost of Living Increase

2010

0%

2011

0%

2012

3.6%

2013

1.7%

2014

1.5%

2015

1.7%

2016

0%

2017

0.3%

Data source: Social Security Administration. Year indicates the period for which the benefit increase was paid.

In order for cost-of-living increases to be larger, inflation would have to climb, and that in itself could be bad for retirees. Yet many already complain that official inflation measures don't accurately reflect the actual costs that retirees face. Some lawmakers had sought to look for ways to boost retiree benefits even in the absence of inflationary pressure, but after the recent election results, such measures appear less likely in the near future.

A small increase in Social Security benefits for 2017 is better than nothing at all, but it still won't do much to make retirees feel more financially secure. Those who are hoping for larger hikes to their monthly Social Security checks will have to wait until at least 2018 for another chance at a larger cost-of-living adjustment.

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