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Awaiting the COLA Announcement

Update, October 16:  The Social Security Administration announced this morning that the December 2012 cost-of-living adjustment (which recipients of Social Security and certain other programs will see in their January checks) will be 1.7 percent — as we estimated in this post below.  The maximum wage and salary level on which Social Security payroll taxes are levied will rise to $113,700.


Tomorrow the Bureau of Labor Statistics will release inflation figures for last month, which will give the Social Security Administration (SSA) the final piece of data it needs to announce the cost-of-living adjustment (COLA) for 2013 for millions of Social Security beneficiaries.  Other programs — including Supplemental Security Income (SSI), veterans’ pensions and compensation benefits, and federal civil-service and military retirement — will pay the same COLA.

Social Security beneficiaries got a 3.6 percent COLA in their January 2012 checks, the first in three years (after a period of low or negative inflation).  If the market experts that Yahoo! polled are correct, we reckon that the next COLA will be about 1.7 percent.  (See table.)

Effective date COLA (percent)
December 2005 4.1
December 2006 3.3
December 2007 2.3
December 2008 5.8
December 2009 0.0
December 2010 0.0
December 2011 3.6
December 2012 (estimate) 1.5 – 1.8
Note:  The COLAs take effect in December of the year shown and appear in beneficiaries’ checks in January.
Source:  Social Security Administration, Center on Budget and Policy Priorities.

Higher Medicare premiums will offset part of that increase.  Most Social Security recipients 65 or older — and many disabled beneficiaries under age 65 — enroll in Medicare’s Supplementary Medical Insurance (better known as “Part B”) and have premiums taken from their monthly checks.  If Part B premiums rise by $9 per month next year, as the program’s trustees estimated this spring, the average retiree — who gets about $1,200 a month from Social Security— would come out ahead by $12 a month.

Most Social Security beneficiaries are protected against any drop in their monthly check when Medicare premiums rise, and for many of them, Medicaid pays the entire premium on their behalf.

This will be the 38th year that SSA has figured the COLAs based on an automatic process that policymakers enacted in 1972.  Other key provisions of Social Security — including the maximum wage and salary level on which Social Security payroll taxes are levied (currently $110,100) — will also change automatically as the agency finishes tallying the data.