The 57 million Americans currently receiving some type of Social Security benefit got a raise this year, for only the second time since 2009.
Prior to 1975, Social Security benefit increases were set by congressional legislation. But beginning in 1975, federal law requires the Social Security program to base annual benefit increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Consumer prices are compared in the third quarter of each year (July, August, and September) with the same months in the previous year. If prices decrease from one year to the next, payments don’t go down, they just remain the same. But if prices increase, Social Security recipients automatically receive a higher benefit payment beginning the following January. This is known as a cost-of-living adjustment, or COLA.
A COLA was issued every year from 1975 until 2009, when Social Security payments increased by 5.8 percent, the largest increase in 27 years. As announced by the Social Security Administration on October 16, 2012, the COLA for 2013 is 1.7 percent. This is only about half of last year’s COLA of 3.6 percent. There was no COLA for 2010 or 2011.
But that’s not the only change that occurred to the Social Security program in 2013.
The temporary two-year reduction from 6.2 to 4.2 percent in the employee share of Social Security taxes expired on December 31, 2012. The amount of one’s earnings subject to Social Security tax (the payroll tax cap) increased from $110,000 to $113,700. The maximum monthly Social Security benefit for a worker retiring at his full retirement age increased from $2,513 to $2,533. The amount one must make in a quarter to earn one credit of coverage in the Social Security system increased from $1,130 to $1,160 (a worker generally needs 40 credits [10 years] to be eligible for benefits). The limit on what those who receive early retirement benefits can earn without penalty if they continue to work increased from $14,640 to $15,120 ($1 in benefits is withheld for every $2 in earnings above the limit).
It should also be noted that the Social Security full retirement age has been gradually increasing at the rate of two months per year. The original retirement age was 65. It is currently 66, with reduced early-retirement benefits payable at age 62. But for those born in 1960 or later, it will be 67 by the time they are eligible for benefits.
But all is not well with the Social Security system.
Click here to read the entire article.