Social Security benefits to go up by 1.7 percent

WASHINGTON -- Millions of older Americans who rely on federal benefits will get a 1.7 percent increase in their monthly payments next year, the government announced Wednesday.

It's the third year in a row the increase will be less than 2 percent.

The annual cost-of-living adjustment, or COLA, affects payments to more than 70 million Social Security recipients, disabled veterans and federal retirees. That's more than a fifth of the country.

The increase amounts to about $20 a month for the typical Social Security recipient.

"The COLA helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty by providing partial protection against inflation," said Jo Ann Jenkins, who leads AARP.

The government announced the benefit increase Wednesday, when it released the latest measure of consumer prices. By law, the increase is based on inflation, which is well below historical averages so far this year.

For example, gasoline prices have dropped over the past year while the cost of clothing is up by less than 1 percent, according to an inflation report released Wednesday.

The cost of meat, fish and eggs is up by nearly 10 percent, but the overall cost of food is up just 3.1 percent.

Medical costs, which disproportionately affect older Americans, are up 1.9 percent over the past year.

Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits.

For the first 35 years, the COLA was less than 2 percent only three times. Next year, the COLA will be less than 2 percent for the fifth time in six years. This year's increase was 1.5 percent, the year before it was 1.7 percent.

Social Security is financed by a 12.4 percent payroll tax on the first $117,000 of a worker's wages half is paid by the worker and half is paid by the employer. Next year, the wage cap will increase to $118,500, the Social Security Administration said.

About 59 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,192.

The COLA 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.

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, 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 COLA is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.

"In the last several years we have had extremely low inflation," said economist Polina Vlasenko, a research fellow at the American Institute for Economic Research. "Basically because inflation is low, the cost-of-living adjustment is going to be low, too. It's supposed to just compensate you for inflation."

Advocates for seniors say the government's measure of inflation doesn't accurately reflect price increases faced by older Americans because they tend to spend more of their income on health care. The rise in medical costs has slowed in recent years, but people hit with serious illnesses can still see their individual costs soar.

People on Medicare, the government health insurance program for older Americans, usually have their Part B premiums deducted from Social Security payments. The premiums, which cover outpatient care, are scheduled to stay the same next year $104.90 a month.

However, federal retirees face a 3.8 percent increase in their health insurance premiums next year, said Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association.

"News of the cost-of-living adjustment for the coming year always is eagerly awaited by the countless Americans who rely on the increase to keep up with the rising price of food, housing, transportation and medical care," Beaudoin said in a statement. "However, despite the partial relief this COLA will provide, the announcement is a reminder that our method for calculating the increasing cost of goods and services is out of sync with the reality faced by millions of federal (retirees), Social Security recipients and military retirees."

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Associated Press Writer Martin Crutsinger contributed to this story.