2017 Social Security Benefits Aren’t Increasing Much | American Funds

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January 23, 2017

Another Reason Retirees Can’t Depend Solely on Social Security

Social Security checks will only see modest increases in 2017, underscoring the importance of saving and investing appropriately for retirement.

$5 — Average estimated monthly increase in Social Security benefits for retirees in 2017

Five dollars doesn’t buy much these days, but seniors who rely on Social Security benefits will have to find a way to make it last.

As the new year unfolds, the nearly 60.5 million Americans who receive Social Security benefits or Supplemental Security Income will be faced with a less-than-pleasant reality: The annual cost-of-living adjustment (COLA) for 2017 is 0.3%. For retirees, that translates into an average monthly increase of $5 to $1,360 (up from $1,355).

This year’s small bump continues a five-year pattern that has seen cost-of-living increases peak at 1.7%. For 2015 there was no increase whatsoever.

That hardly seems fair. The reality is that the government raises Social Security income only when there has been an increase in the cost of living based on the Department of Labor’s Consumer Price Index (CPI-W). While the CPI-W (which includes the cost of such items as food, housing, medical care and transportation) rose in 2016, it did so only slightly.

The problem, however, is that CPI-W tracks the prices of goods and services consumed by urban wage earners and clerical workers. As such, their spending habits are apt to differ from retirees.

“The biggest [discrepancy] is health care costs,” explains Mary Johnson, Social Security and Medicare policy consultant at The Senior Citizens League, an advocacy group. “Older people use more health care services.”

A nominal COLA increase can be especially harsh for seniors who rely on their Social Security checks to make ends meet — and it underscores the importance of saving for retirement.

“Investors must take inflation and the need to grow their principal into account when building their retirement portfolios,” emphasizes Christopher Gies, senior vice president, advisor education and sales force development at American Funds.

For those already living off their nest eggs, the small uptick in Social Security benefits this year is a reminder to review their asset allocation to ensure that it is keeping pace with inflation.

“Many investors have overlooked the importance of making dividend-paying stocks and the mutual funds that invest in them part of their retirement portfolios. This is a critical mistake,” Chris adds. Despite their risk potential, “stocks represent ownership in companies with the potential to grow both their value and the cash they distribute in the form of dividends. This growth can help to offset the effects of inflation.”

Source: “Social Security Announces 0.3 Percent Benefit Increase for 2017.” Social Security Administration Press Release dated October 18, 2016.

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