Millions of older Americans who rely on federal benefits will get a 1.7% increase in their monthly payments next year, the government announced today. That's the fifth time in six years the increase will be less than 2%. The increase amounts to about $20 a month for the typical Social Security recipient.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 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.
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. 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% only three times. Social Security is financed by a 12.4% 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. (Read more Social Security stories.)