Social Security COLA for 2017 is VERY Small

On October 18 the Social Security Administration announced a Cost of Living Adjustment (COLA) of 0.3% for 2017.  Aside from the three years in which there was no COLA (2010, 2011, and 2016), this is by far the smallest percentage COLA since these automatic increases were first introduced in 1975.

How does this translate into extra dollars? It amounts to a $3 monthly increase for every $1,000 of monthly benefits. So if you’re receiving a monthly benefit amount of $2,000, you would expect a gross benefit increase of $6.  The COLA takes effect beginning with December 2016 benefits, which are payable in January 2017.

But don’t spend it all in one place: if you are paying Medicare Part B premiums it is quite likely that the entire COLA increase, and possibly more, will be consumed by higher Part B premiums. We will know more when Medicare releases its premium schedules for 2017.

The real impact of this miniscule COLA will be felt in other areas that, while not affected by the size of the COLA percentage increase, depend on the declaration of a COLA of any size to trigger a change.  Here are some of the affected numbers:

Social Security Contribution and Benefit Base.  Also known as the “taxable wage base,” the ceiling on earnings subject to Social Security taxes grew to $118,500 in 2015, and remained at that level in 2016 because there was no COLA in 2016, and the wage base cannot increase unless there is a COLA declared for a particular year.

The 0.3% COLA for 2017 has allowed the wage base to spike upward, based on a formula that tracks the National Average Wage Index.  In 2017 that ceiling has been raised to $127,200 – the largest year-over-year dollar increase in the history of Social Security.  Translation: if your earnings as an employee are at or above the new wage base you will pay $539 more in Social Security taxes than you would have paid in 2016 with identical earnings.

Social Security Earnings Test.  In 2016, the “exempt amount” under the Earnings Test was $15,720; in 2017 the exemption increases to $16,920.

Credits or Quarters of Coverage.  40 credits are needed to qualify to receive retirement benefits under one’s own record.  In 2016, a credit required earnings of $1,260; in 2017, $1,300 of earnings is required to accumulate a credit.

Maximum Primary Insurance Amount.  The highest possible benefit for a person retiring in 2016 at Full Retirement Age was $2,639, which was down from $2,663 the previous year.  The maximum benefit for someone retiring at FRA in 2017 is $2,687.

Peter M. Weinbaum, JD