Why does my retirement benefit decrease in 2017?

While the 2015 Social Security COLA, which is used to adjust 2016 benefits, was 0%, the 2015 CPI-W, the inflation index upon which the COLA is based, was -0.412%. There was deflation, i.e. negative inflation in the CPI-W index. Future inflation has to make up the deflation in 2015, which means that the 2016 COLA will be smaller than the 2016 inflation.

For example, if inflation, as measured by the CPI-W, is 3% in 2016, the 2016 COLA will be 2.6%. Hence, your 2017 benefit, in real 2016 dollars, is smaller than it would have been had there not been deflation in 2015.