Social Security: Calculating cost of living adjustments | TSLN.com

Social Security: Calculating cost of living adjustments

Kathy Petersen

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012. The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on Dec. 30, 2011. Because the normal SSI payment date is the first of the month and Jan. 1 is a holiday, the SSI payments for January are always made at the end of the previous December.

Most people are aware that there are annual increases in Social Security benefits to offset the corrosive effects of inflation on fixed incomes. These increases, or COLAs, are such an accepted feature of the program that it is difficult to imagine a time when there were no COLAs. But in fact, when Ida May Fuller received her first $22.54 benefit payment in January of 1940, this would be the same amount she would receive each month for the next 10 years. For Ida May Fuller, and the millions of other Social Security beneficiaries like her, the amount of that first benefit check was the amount they could expect to receive for life.

Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation. The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics. A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective.

Some other changes that take effect in January of each year are based on the increase in average wages. The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will be $14,640. (We deduct $1 from benefits for each $2 earned over $14,640.)

The earnings limit for people turning 66 in 2012 will be $38,880. (We deduct $1 from benefits for each $3 earned over $38,880 until the month the worker turns age 66.) There is no limit on earnings for workers who are “full” retirement age or older for the entire year. You can read more at http://www.socialsecurity.gov.

Information about Medicare changes for 2012, when announced, will be available at http://www.Medicare.gov.

Recommended Stories For You

kathy petersen is a public affairs specialist for social security, denver region. you can write her c/o social security administration, 605 main, suite 201, rapid city, sd, 57701 or via e-mail at kathy.petersen@ssa.gov. next week kathy explains why thanksgiving, a time when generations gather around the table, is a great time to discuss social security.

Go back to article