Those holding their breath for a substantial bump in 2017’s cost-of-living-adjustment to Social Security benefits are most likely doing so in vain.
On October 18, the U.S. Department of Labor’s Bureau of Labor Statistics will officially announce the Social Security Cost-of-Living Adjustment rate for 2017, which is derived from averaging the July, August, and September inflation numbers from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W index.
From there, actuaries average this year’s inflation increase with the previous Cost-of-Living Adjustment, which was made in the third quarter of 2014. There was no COLA in 2015.
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If this year’s three-month CPI-W gauge is higher than the third quarter’s in 2014, then an increase in the COLA is warranted.
Earlier this year, the Social Security Administration released its own predictions for the 2017 COLA, cautioning that any increase should be expected to be slight. In its 2016 Trustees Report, SSA estimated that a 0.2 percent COLA increase is most likely.
In the third quarter of 2014, the average CPI-W registered at 234.252. Data from July and August of this year, which has already been released, showed marginal increases from the 2014 baseline number—234.789 for July, and 234.909 for August.
Since 1975, COLA increases have been issued in all but three years — 2009, 2010 and 2015. In that period, the increase dropped 22 times from the previous year, but on average, the COLA has increased 3.88 percent since 1975, and 2.27 percent since 2000.
If SSA’s predicted 2017 increase of 0.2 percent holds true, it would mark the lowest rate increase on record, not accounting for the three years when there was no increase.
Changes to defined contribution and defined benefit plan limits
Inflation data from the third quarter of this year will also affect the amounts on retirement benefit plan limits.
Those limits are calculated using inflation measurements that are different from how the Social Security Administration handles COLA adjustments. The Consumer Price Index for All Urban Consumers, or CPI-U, is used to establish COLA increases for defined benefit and defined contribution plans, not the CPI-W used to set COLA increases for Social Security.
By and large, limits to retirement plans will remain unchanged in 2017, with a couple of exceptions, according to Marge Martin, a principal and actuary for Buck Consultants professional services group, a division of Xerox HR Services.