Why Social Security is giving participants a 2% raise
The SSA figures out how big each year's cost-of-living adjustment will be by looking at data on prices. The CPI-W is one part of the Consumer Price Index that the Bureau of Labor Statistics tracks, and to figure the correct COLA, the SSA looks at the average of the CPI-W numbers for the three months of July, August, and September. It then compares that number to the average of the CPI-Ws for those same three months in the previous year. The percentage difference becomes the COLA that takes effect in January of the following year.
For 2017, the average for the CPI-W during the summer months was 239.668, helped by a substantial increase in September due to rising fuel prices. That was 1.96% higher than the corresponding figure of 235.057 in 2016. The SSA rounded the figure up to the nearest tenth of a percentage point, resulting in the 2% COLA.
The typical retired worker receives $1,371 in monthly benefits from Social Security, according to the latest SSA statistics. That number will rise by more than $27 because of the COLA. However, many Social Security recipients won't actually see that $27 show up in the checks they get.
Why Medicare could take away your Social Security COLA
The reason why Social Security checks won't go up as much as the 2% COLA would suggest for many recipients has to do with the way that Social Security and Medicare interact. For those who receive Social Security, increases in Medicare premiums in past years have been limited by a little-known law called the hold harmless provision. This provision prevents Social Security recipients from getting smaller Social Security checks when monthly Medicare premiums go up. Typically, Medicare premiums are withheld directly from Social Security checks, so retirees see only the net amount left after paying their healthcare premium costs.