[Updated] It’s official, the 2013 COLA rate will be 1.7%. The Social Security administration confirmed this figure and as a result Social Security and Supplemental Security Income (SSI) benefits for nearly 62 million Americans will increase 1.7 percent in 2013. This is marginally higher than the Congressional Budget Office (CBO) estimate of 1.3% released last month. The 2013 increase is significantly below the 2012 COLA increase of 3.6%, reflecting a persistent low inflation and interest rate environment. The 1.7% increase will be effective December 1st and will be seen in January 2013 payments. For the average retiree this is equivalent to an extra $22 a month.
The COLA increase is based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the previous year in which a COLA became effective. The government publishes the official annual cost-of-living adjustments typically in late October, with changes to social security, retiree benefits and medicare effective for the subsequent year.
Retiree pay increases for military and federal civilian workers is also linked to the COLA adjustment and is automatically adjusted on an annual basis. Federal retirees, whether they are covered by the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), will receive the full 1.7 percent COLA adjustment for 2013. According to the government formula, if the full COLA increase is 3 percent or higher, as it was for 2012, FERS retirees receive 1 percent less than the full increase. So FERS retirees received 2.6 percent for 2012. If the COLA falls between 2 percent and 3 percent, then FERS retirees would receive 2 percent. If the increase is less than 2 percent, as it is in 2013, FERS retirees receive the same as CSRS retirees. In other words, 1.7 percent.
However, adjustments in veterans’ benefits covering disability and survivor are not automatic, and must be approved by Congress and signed into law by the president. The House has already approved the COLA increase (HR 4114), and the Senate (via S2259) will soon follow suit.
Change in 2013 Maximum Taxable Earnings - The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $113,700 from $110,100. Further the earnings per quarter required to earn a social security credit will increase by $30 to $1,160. You need to have 40 minimum earning quarters (10 years) to be eligible to receive social security benefits.