Seniors will receive an increase to their Social Security in 2013, though not much. The Social Security Administration announced Tuesday monthly benefits will increase 1.7 percent beginning Jan. 1. For the nearly 62 million Americans receiving either monthly Social Security or Supplemental Security Income checks, the increase is less than half of the 3.6 percent raise they got in 2012, and barely covers Medicare premium increases.
The average recipient whose monthly benefit is $1,236 will receive about $21 more a month through the cost-of-living adjustment, amounting to an annual payment of $15,132. Although small on an individual basis, the government will pay $14.3 billion in benefits in 2013.
“While this modest increase will help, much of the COLA will be consumed by healthcare and prescription costs, which continually outpace inflation,” said Nancy LeaMond, executive vice president of AARP. “Every day, retirees and other beneficiaries struggling to make ends meet still feel like they’re falling further behind.”
Social Security benefits are calculated in the third quarter of each year based on the prior 12 month’s consumer inflation rate. Therefore, when the Labor Department announced the consumer price index rose by 1.7 percent in the 12 months leading up to September, the figure determined Social Security’s COLA. Last year’s higher adjustment was fueled by increasing food and fuel costs.
Inflation in 2012 was more moderate, leading to the lower adjustment. No increases were made to Social Security in 2009 or 2010. The 2013 increase, however, is one of the smallest since automatic annual adjustments began in 1975. Before then, adjustments had to be approved by Congress.
Some economists, however, say the methods used to calculate inflation inflate the metrics, and Social Security’s COLAs are too high. Lawmakers, including former Senator Alan Simpson and former Clinton chief of staff Erskine Bowles, have taken notice and introduced a deficit plan that would reduce the annual benefit increases awarded to Social Security recipients. Still other lawmakers as well as senior advocacy groups oppose the idea.
“It would be a shock to millions of seniors and disabled veterans to learn that some in Washington think their current COLAs are too generous,” Senator Bernie Sanders, a Vermont independent, said today in a statement.
Along with the COLA will come an increase in Social Security taxes. Currently, the tax applies to wages up to $110,000 annually. The cap will increase to $113,700 next year. According to the Social Security Administration, of the estimated 163 million workers who pay the taxes in 2013, 10 million will pay higher taxes as a result of the increase.
Other changes may also soon occur that will increase Social Security revenue. The benefit is supported through a 6.2 percent tax on employee wages. However, in the past few years, employees have paid only 4.2 percent through a payroll tax holiday, which is set to expire at the end of 2012. Although the president and Congress could agree to extend the tax holiday, it is one of several fiscal issues they must negotiate during the lame duck congressional session following the Nov. 6 elections.