Seniors will get a 1.7% increase in their monthly Social Security payments in 2013, one of the smallest cost-of-living adjustments since the automatic annual increase in benefits took effect in 1975.
The Social Security Administration on Tuesday announced the 1.7% COLA, which is based on the rate of inflation. It is the sixth time since 1975 that the adjustment has been less than 2%. This year, retirees received a 3.6% increase after receiving no increase the previous two years.
Seniors receive an average of $1,237 a month, meaning the increase will add about $21 a month to their checks, according to the agency. However, the Social Security Administration warned that “for some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.”
The Medicare Part B premium is now about $100 a month and the government is projecting an expected increase of about $7 a month when new rate schedules are announced soon. The Part B premium covers doctor’s visits.
“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, a group that lobbies on behalf of seniors. “Every day, retirees and other beneficiaries struggling to make ends meet still feel like they’re falling further behind.”
Tuesday’s announced increase applies to those who receive Social Security payments and to those who receive Supplemental Security Income payments. In all, about 62 million Americans receive those payments, of whom about 56 million are Social Security recipients.
Revenue from Social Security taxes will also rise next year, according to the agency.
The Social Security tax currently applies to annual wages of up to $110,000, but that cap will be increased to $113,700 next year. “Of the estimated 163 million workers who will pay Social Security taxes in 2013, nearly 10 million will pay higher taxes as a result of the increase in the taxable maximum,” the agency said.
Currently, Social Security is supported by a 6.2% tax on employee wages with a similar amount collected from employers. Employees have paid two percentage points less in recent years as part of a payroll tax holiday, set to expire at year’s end. The president and Congress can agree to extend the tax holiday, but its fate is tied to negotiations over a series of fiscal measures expected to dominate the lame duck congressional session after the Nov. 6 elections.
Until 1975, each Social Security increase had to be approved by Congress. Then lawmakers decided to remove political pressures from the annual process, making increases automatic based on mathematical computations using accepted statistical gauges.
The COLA is calculated by using the government’s Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, that looks at price changes for food, housing, clothing, transportation, energy, medical care, recreation and education. The Social Security Administration compares the average price index for July, August and September with the index for the same months a year earlier. The September index was released on Tuesday.