By the Numbers
January 23, 2017
$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.”
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.