The Incredible Shrinking 2% Social Security COLA

Drumroll please. The Social Security Administration today announced that 61 million beneficiaries will receive a 2% cost of living adjustment (COLA) starting with benefits paid in January 2018. That's music to the ears of seniors who got a skimpy 0.3% hike at the beginning of this year, after being stiffed with no COLA at all in 2016. Next year's 2% hike, which is based on inflation as measured by the consumer price index, is the largest since a 3.6% increase in 2011.

Social Security says the average benefit will rise by $27 a month.

But don't start feeling like the drum major at the head of a parade just yet. Come January, you'll more likely feel like the guy sweeping up at the end.

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There's a good chance that most, if not all, of the increase will be spirited away to cover higher Medicare premiums before it ever makes its way into the automatic deposit into your bank account. Part of the blame goes to a rule that's actually designed to help beneficiaries, and successfully has been doing just that for the past few years.

The "hold harmless" provision prevents Medicare Part B premiums, which in most cases are deducted from Social Security benefits, from rising by more dollars than benefits do. So, when COLAs are small or nonexistent, premiums can't rise as fast as they should to keep pace with rising medical costs. The provision covers most beneficiaries, except first-time enrollees, those who don't have premiums deducted from benefits (because they haven't begun receiving benefits) and those subject to high-income premium surcharges.