[Updated for 2012 Social Security changes] The official 2012 COLA (cost-of-living adjustment) increase is 3.6%, as announced by the SSA. This will mean increased payments to social security recipients, federal employees (in 2013) and other groups whose pay/benefits are tied to COLA. The 2012 COLA increase would be the first in two years and is a much needed boost for millions of Americans.
As described in the updates below, COLA is determined each year by the increase, if any, in the third-quarter CPI over the index level a year earlier. The 3.6 percent increase is based on based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2008 through the third quarter of 2011.
Other key changes to Social security in 2012 are:
– Maximum taxable earnings subject to social security (wage base) will increase from $106,800 to $110,100. This will mean that about 10 million of the 161 million eligible workers will pay higher taxes as a result of the increase in the taxable maximum.
– The maximum Social Security Benefit for a worker retiring at full retirement age has risen substantially from $2,366/mo. to $2,513/mo.
– Earnings needed per quarter to qualify for social security coverage have risen fron $1,120 to $1,130.
– The SSI Federal Payment Standard have increased as follows: Individual $674/mo. to $698/mo; Couple $1,011/mo. to $1,048/mo.
– SSI Resources limits are unchanged
– SSI Student Exclusion has increased in 2012: Monthly limit will rise from $1,640 to $1,700; Annual limit will rise from $6,600 to $6,840
– Social Security Disability Thresholds have also increased slightly : Substantial Gainful Activity (SGA) for Non-Blind has risen from $1,000/mo to $1,010/mo, versus $1,640/mo. to $1,690/mo.for the blind. The Trial Work Period (TWP) threshold remains unchanged.
[Update Oct 2010 – No Social Security Increase in 2011 With Zero COLA Adjustment] It has been confirmed. The SSA confirmed that monthly SSI payments to nearly 60 million Americans will not increase in 2011. Here are some more details from the official press release:
The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a cost-of-living adjustment (COLA) was determined to the third quarter of the current year. As determined by the Bureau of Labor Statistics, there is no increase in the CPI-W from the third quarter of 2008, the last year a COLA was determined, to the third quarter of 2010, therefore, under existing law, there can be no COLA in 2011.
Other changes that would normally take effect based on changes in the national average wage index also will not take effect in January 2011. Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax as well as the retirement earnings test exempt amounts. These amounts will remain unchanged in 2011.
The Department of Health and Human Services has not yet announced if there will be any Medicare premium changes for 2011. Should there be an increase in the Medicare Part B premium, the law contains a “hold harmless” provision that protects more than 70 percent of Social Security beneficiaries from paying a higher Part B premium, in order to avoid reducing their net Social Security benefit. Those not protected include higher income beneficiaries subject to an income-adjusted Part B premium and beneficiaries newly entitled to Part B in 2011. In addition, almost 20 percent of beneficiaries have their Medicare Part B premiums paid by state medical assistance programs and thus will see no change in their Social Security benefit. The state will be required to pay any Medicare Part B premium increase.
The Social Security Contribution and Benefits base also remains unchanged in 2011 at $106,800. This limit, also referred to as the Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program limit, is the amount of earnings subject to taxation for a given year. The OASDI tax rate for wages paid in 2011 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $106,800 would contribute $6,621.60 to the OASDI program in 2011, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2011 is 12.4 percent.
CNN reported earlier that chances are high that for the second year in a row Social Security beneficiaries will see no increase in their SSI benefits. Analysts say there just hasn’t been enough inflation to justify a bump in benefits. But the official word won’t come until later this month when the Social Security Administration (SSA) announces whether there will be a cost-of-living adjustment (COLA) for 2011.
The last time there was an inflation adjustment was in 2009: Social Security beneficiaries got a higher-than-normal 5.8% increase because of a temporary spike in energy prices in the third quarter of 2008. This year, there has been some inflation, but prices still are lower than they were in the third quarter of 2008 — and that’s the quarter that counts. By law, the SSA is required to track inflation using the most recent third quarter that led to an adjustment. So the 2011 decision will be based on the change in inflation between the third quarter of 2008 and the third quarter of 2010. (see update below for calculations).
The CBO in August said it expects beneficiaries will not receive a COLA in 2011, and will receive only a 0.4% increase for 2012. If the CBO is right, that would mean a monthly Social Security retirement check of $1,170 — the average among current retirees as of June — would be the same next year, and rise by about 5 bucks in 2012.
SSI recipients got a one-time bonus payment of $250 in 2009 as part of Obama’s Stimulus package and were expecting to get one in 2010 (given a COLA increase was unlikely). However, Congress has held up bills on this payment and one is unlikely this year
There’s a bit of bright news for high-income earners still working: If there is no COLA for 2011, that also means there would be no increase in the amount of earnings subject to the Social Security tax, which is currently assessed on the first $106,800 of a person’s wages.
Even if the inflation math is correct, the idea of another year without a pay hike isn’t likely to be popular with the nearly 58 million people who receive Social Security retirement, disability or supplemental income benefits, particularly those who may face higher Medicare premiums.
But critics of the extra payments pointed out that Social Security benefits are intended to maintain purchasing power — which by the inflation measures used they have. And, they noted, benefits don’t decline when prices decline, which happened in 2009.
[Updated Aug 2010] The BLS reported that the July Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was at 213.9 (1982-84=100). The CPI-W is a subset of the headline inflation number (CPI-U) which covers households of wage earners and clerical workers. The CPI-W is a key inflation index because it is used to determine the Cost of Living Adjustment (COLA) that drives increases to a number of government and retiree benefits like Social Security.
The Cost of Living Adjustment (COLA) is based on the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest preceding average of Q3 months. In 2007, the average of CPI-W was 203.6. In 2008, the average was 215.5. That gave a COLA increase of 5.8% in 2009. In 2009, the Q3 average of CPI-W was 211. That was a decline of -2.1% from 2008. However the adjustment can never be negative by law – so that’s why there was no COLA increase in 2010.
Because the current CPI-W is still below the 2008 level (215.5), which was the highest preceding third quarter, there will probably be no 2011 COLA increase this year unless inflation spikes in August and September. I see this highly unlikely given the low growth and recessionary environment we are currently in. However it is likely, due to the fact that we are in an election year that some legislative action will take place to push through an increase. Already some House and Senate members are proposing draft bills to alter the current COLA rules which prohibit an increase in the contribution and benefit base if COLA is not greater than zero.
A COLA increases a person’s Social Security retirement benefit by approximately the product of the COLA and the benefit amount. The exact computation, however, is more complex. Each Social Security benefit is based on a “primary insurance amount,” or PIA. The PIA in turn is directly related to the primary beneficiary’s earnings through a benefit formula. It is the PIA that is increased by the COLA. For example, if the initial PIA is $1,206.50 and it is increased by a 5.8-percent COLA, the new PIA would be $1,276.40
The Social Security Act specifies a formula for determining each COLA. In general, a COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next. If there is no increase, there is no COLA. (source: SSA.gov)
The August 2010 CPI numbers are scheduled to be released on Friday, September 17, 2010, at 8:30 a.m. (EDT), and are sure to be closely watched by many SSI recipients.