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Social Security cost-of-living allowance increases for 2017 is just 0.3 percent

Your Social Security check will increase by a measly 0.3 percent next year.

That's according to the Social Security Administration, which announced its 2017 cost-of-living adjustment on Tuesday. The "COLAs" are based on increases in the Consumer Price Index.

The agency also will be taking more. It said it will increase the maximum amount of earnings subject to the Social Security tax to $127,200 from $118,500, starting in January.

Social Security checks
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Social Security checks

The announcement comes months after the agency's board had predicted that the adjustments payable next January would range from zero to 0.7 percent. The Medicare Trustees report in June had predicted a COLA increase of 0.2 percent for Social Security.

The average monthly Social Security benefit in January will be $1,360, $5 more than now, according to the government.

News of the tiny increase doesn't come as a surprise for financial planners, who already held out pessimistic expectations.

Stretching a dollar

Financial advisors have said that they aren't counting on Social Security COLAs as a retirement income boost, especially since 2016 was a year with no increase for retirees.

As a result, advisors are looking for other ways to help older clients generate income, including increasing allocations to stocks.

"If inflation happens, whether Social Security recognizes it or not, you'll have to increase retirement income," said Benjamin Brandt, a fee-only financial planner at Capital City Wealth Management in Bismarck, North Dakota.

"It's not coming from your pension or from Social Security," he said. "It's coming from your investment portfolio."

The effect of having a tiny-to-flat increase in Social Security is much more jarring for people who largely depend on the government program.

"The government is looking at CPI, and if they see no inflation, then there's no increase," said Gregory L. Olsen, a partner at Lenox Advisors in New York.

"Seniors who rely on it are in a position where if their rent goes up $50 a month, but Social Security increases by only $5 a month, what will you do without now?" he asked.

There aren't very many ways for retirees to squeeze out an extra dollar from otherwise "safe" pots of cash. Rates on three-year certificates of deposit are still below 2 percent, and savings accounts are crediting interest in the neighborhood of 1 percent.

Medicare woes

Next year, a handful of retirees will contend with increased costs for Medicare Part B, the insurance program that applies to doctor's services and outpatient care.

A "hold harmless" provision buffers most retirees from increased Medicare Part B expenses in a year when the increase in the premium is higher than the Social Security COLA. These people will not pay higher Part B costs.

You can expect to pay higher Part B premiums in the following situations:

  • You're eligible to enroll in Medicare for the first time in 2017.
  • You're enrolled in Medicare, but you aren't collecting Social Security.
  • You're already subject to Medicare premium surcharges because you didn't enroll on time and now have to pay a penalty.

Keep a lid on your costs by enrolling for Medicare when you're eligible. You can sign up during the initial enrollment period, which starts three months before your 65th birthday and ends three months after.

If you miss that first enrollment window, you will be subject to a 10 percent late fee for each 12-month period you went without coverage. You will pay this surcharge for the remainder of your life.

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Where do the candidates stand?

As retirees and their financial advisors grapple with the prospect of another year with flat Social Security income, the presidential candidates have had little to say about the program at the last two debates.

But Donald Trump and Hillary Clinton spelled out their positions in an AARP Bulletin on June 27.

There, Clinton's campaign said she was against cutting COLAs, would push back against privatization of the program, and fight efforts to increase the retirement age. She has also supported taxing high earners' income beyond the current cap of $118,500.

In that same AARP Bulletin, Trump's campaign said he would work with Congress to ensure "we have a pro-growth agenda in place," but did not provide details on specific changes to Social Security.

"If we are able to sustain growth rates in GDP that we had as a result of the Kennedy and Reagan tax reforms, we will be able to secure Social Security for the future," his campaign said.