Social Security benefits to rise a tiny 0.3% in '17

Social Security payments
Social Security payments

Millions of Social Security recipients and federal retirees will get a 0.3 percent increase in monthly benefits next year, the Social Security Administration said Tuesday.

The decision marks the fifth year in a row that older Americans will have to settle for historically low raises.

There was no increase this year. Next year's benefit increase will be small because inflation is low, restrained in part by lower fuel prices.

The average monthly Social Security payment is $1,238. That translates into a monthly increase of less than $4.

[GRAPHIC: Interactive data show cost-of-living increases, more]

"After last year's zero [adjustment], this year's announcement doesn't offer much help to the millions of families who depend on their Social Security benefits," said a statement by Jo Ann Jenkins, the chief executive of AARP, an interest group focused on older Americans.

The federal government announced the cost-of-living adjustment Tuesday morning. By law, the adjustment is based on a government measure of consumer prices.

The change affects more than 70 million Americans -- about 1 in 5.

Medicare Part B premiums, which are usually deducted from Social Security payments, are expected to increase next year to the point at which they will probably wipe out the entire increase.

By law, the dollar increase in Medicare's Part B premium cannot exceed a beneficiary's cost-of-living raise. That's known as the "hold harmless" provision, and it protects the majority of Medicare recipients.

But another federal law says that the Part B premium must raise enough money to cover one-fourth of expected spending on doctors' services. That means that a minority of beneficiaries, including new enrollees and higher-income people, have to shoulder the full increase. Their premiums would jump.

More than 60 million retirees, disabled workers, spouses and children get Social Security benefits. The adjustment also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get Supplemental Security Income also receive Social Security.

Since benefits are based on lifetime earnings, and Arkansas has a history of being a low-income state, the 0.3 percent increase is likely smaller for Arkansans than the average recipient, said Michael Pakko, chief economist at the University of Arkansas at Little Rock Institute for Economic Advancement.

Since 2008, the annual adjustment has been above 2 percent only once, in 2011. It's been zero three times.

"This loss of anticipated retirement income compounds every year, causing people to spend through retirement savings far more quickly than planned," said Mary Johnson of the Senior Citizens League. "Over the course of a 25- or 30-year retirement, it reduces anticipated Social Security income by tens of thousands of dollars."

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The adjustment is calculated using the average price index for July, August and September. If prices go up, benefits go up. If prices drop or stay flat, benefits stay the same.

The numbers for July and August suggested an adjustment of just 0.3 percent, and the Labor Department said Tuesday that consumer prices increased 0.3 percent in September

Higher energy costs fueled U.S. consumer prices last month, but overall inflation remained in check as it has for the past several years.

Much of September's rise stemmed from energy, housing and prescription drugs. Energy costs surged 2.9 percent as oil and gasoline prices rebounded from recent lows. Previous price declines still mean that gas costs 6.4 percent less than a year ago.

Inflation has stayed relatively low despite job growth that has brought more workers into the economy. Until last month, the modest levels of inflation largely came from muted oil prices and a stronger dollar.

With inflation a minimal risk, the Federal Reserve has held down short-term interest rates in hopes of spurring more borrowing and spending to promote economic growth.

The markets expect that the Fed will keep rates steady at its November meeting and then increase rates at its meeting in December, which would be the second increase in a year.

"This is still consistent with a December rate hike and a gradual pace over the next year," said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla.

Fed monetary policymakers want to see prices rising 2 percent annually. The Fed uses a different inflation barometer, based on personal consumption expenditures, that runs lower than the consumer price index. The Commerce Department's personal consumption expenditures measure hasn't met the Fed's 2 percent goal since April 2012.

"Nothing here to push the Fed to spring into action" at the next Fed meeting in November, Jennifer Lee, a senior economist at BMO Capital Markets, said about the inflation report for September.

Core inflation, which excludes the volatile categories of food and energy, rose 0.1 percent.

Prices fell last month for cars and clothing. But they increased 0.4 percent for shelter costs, which make up roughly a third of the consumer price index.

Over the past 12 months, core inflation has increased 2.2 percent. But the entire consumer price index has risen at a gradual yearly pace of 1.5 percent, undershooting the Federal Reserve's 2 percent target for inflation.

Information for this article was contributed by Stephen Ohlemacher, Ricardo Alonzo-Zaldivar and Josh Boak of The Associated Press; by Jim Puzzanghera of the Los Angeles Times; by Michelle Jamrisko of Bloomberg News; by Jessica Seaman of the Arkansas Democrat-Gazette; and by Jonnelle Marte of The Washington Post.

A Section on 10/19/2016

Upcoming Events