WASHINGTON (AP) - More than 56 million
Americans on Social Security will get raises averaging $19 a month come
January, one of the smallest hikes since automatic adjustments for
inflation were adopted in 1975, the government announced Tuesday.
Much of the 1.7 percent
increase in benefits could get wiped out by higher Medicare premiums,
which are deducted from Social Security payments.
At the same time, about 10
million working people who make more than $110,100 will be hit with a
tax increase next year because more of their wages will be subjected to
Social Security taxes.
The cost-of-living
adjustment, or COLA, on payments is tied to a government measure of
inflation released Tuesday. It confirms that inflation has been
relatively low over the past year, despite the recent surge in gasoline
prices.
Social Security recipients received a 3.6 percent increase in benefits this year after getting none the previous two years.
"The annual COLA is
critically important to the financial security of the (56) million
Americans receiving Social Security benefits today," said Nancy LeaMond,
AARP's executive vice president. "Amid rising costs for food, utilities
and health care and continued economic uncertainty, the COLA helps
millions of older Americans maintain their standard of living, keeping
many out of poverty."
Social Security payments
average $1,131 a month, or $13,572 a year. A 1.7 percent increase
amounts to a $19 increase each month, or about $230 a year.
Payments for retired
workers are a little higher on average, about $1,237, so the typical
increase will be slightly larger. Disabled workers get a little less on
average, about $1,111 a month, so their typical increase will be a
little smaller. Social Security also provides benefits to millions of
spouses, widows, widowers and children.
About 8 million people who
receive Supplemental Security Income, the disability program for poor
people, will also receive the COLA. In all, the increase will affect
about one in five U.S. residents.
Since 1975, the annual COLA
has averaged 4.2 percent. Only five times has it been below 2 percent,
including the two times it was zero. Before 1975, it took an act of
Congress to increase Social Security payments.
"While this modest increase
will help, much of the COLA will be consumed by health care and
prescription costs, which continually outpace inflation," LeaMond said.
Medicare Part B premiums,
which cover doctor visits, are expected to rise by about $7 per month
for 2013, according to government projections. Since the premiums are
deducted from Social Security payments, that would eat up more than a
third of the average COLA.
The Part B premium is
currently $99.90 a month for most seniors. Medicare is expected to
announce the premium for 2013 in the coming weeks.
Social Security is
supported by a 12.4 percent tax on wages up to $110,100. That threshold
will increase to $113,700 next year, resulting in higher taxes for
nearly 10 million workers and their employers, according to the Social
Security Administration.
The tax increase would
amount to $446 for someone who makes at least $113,700. Half the tax is
paid by workers and the other half is paid by employers.
Congress and President
Barack Obama reduced the share paid by workers from 6.2 percent to 4.2
percent for 2011 and 2012. The temporary cut, however, is due to expire
at the end of the year.
By law, the cost-of-living
adjustment is based on the Consumer Price Index for Urban Wage Earners
and Clerical Workers, or CPI-W, a broad measure of consumer prices
generated by the Bureau of Labor Statistics. It measures price changes
for food, housing, clothing, transportation, energy, medical care,
recreation and education.
Over the past year, housing
costs have gone up 1.4 percent, but home energy costs have dropped by
3.8 percent, according to the CPI-W. Medical costs, which tend to hit
seniors harder than younger adults, have increased by 4.4 percent.
Gasoline prices have gone
up by 6.8 percent, but much of that increase happened in the past month,
so it is not fully reflected in the COLA for Social Security.
To calculate the COLA, the
Social Security Administration compares the average price index for
July, August and September with the index for the same three months in
the previous year. The price index for September - the final piece of
the puzzle - was released Tuesday.
If consumer prices increase
from year to year, Social Security recipients automatically get higher
payments, starting the following January. If prices drop, the payments
stay the same, as they did in 2010 and 2011.
Congress has been
considering changing the way the COLA is calculated by adopting a new
inflation index that would result in lower annual adjustments. Despite
fierce opposition from seniors groups, a deficit reduction committee
formed by Obama in 2010 recommended the new index, and Obama floated the
idea during deficit reduction talks last year.
Those talks failed but the
idea could resurface as policymakers look for ways to cut benefits to
improve the program's finances and reduce federal spending.
Mitt Romney, Obama's
Republican opponent in the presidential election, says he would
strengthen Social Security by slowing the growth of benefits for people
with "higher incomes." Romney hasn't defined "higher incomes" or
explained how he would slow the growth of benefits for such people.
One way would be to reduce their annual COLAs.
Advocates for seniors are
fighting back in ad campaigns and at local forums across the country.
They say this year's small pay hike is evidence that the COLA shouldn't
be shrunk.
"Seniors know all too well
their living costs often far outpace the COLA increase, yet incredibly
many politicians are proposing a new formula that will erode this
inflation protection even more," said Max Richtman, who heads the
National Committee to Preserve Social Security and Medicare.
"It's hard to imagine how
anyone can argue the current COLA is too generous," Richtman said. "I've
asked seniors at town hall meetings nationwide how many think the COLA
is too large - laughter is always the response."
