October 17, 2012 10:41:41 AM
WASHINGTON -- More than 56 million Americans on Social Security will get raises averaging $19 a month come January, one of the smallest hikes since automatic adjustments for inflation were adopted in 1975, the government announced Tuesday.
Much of the 1.7 percent increase in benefits could get wiped out by higher Medicare premiums, which are deducted from Social Security payments.
At the same time, about 10 million working people who make more than $110,100 will be hit with a tax increase next year because more of their wages will be subjected to Social Security taxes.
The cost-of-living adjustment, or COLA, on payments is tied to a government measure of inflation released Tuesday. It confirms that inflation has been relatively low over the past year, despite the recent surge in gasoline prices.
Social Security recipients received a 3.6 percent increase in benefits this year after getting none the previous two years.
"The annual COLA is critically important to the financial security of the (56) million Americans receiving Social Security benefits today," said Nancy LeaMond, AARP's executive vice president. "Amid rising costs for food, utilities and health care and continued economic uncertainty, the COLA helps millions of older Americans maintain their standard of living, keeping many out of poverty."
Social Security payments average $1,131 a month, or $13,572 a year. A 1.7 percent increase amounts to a $19 increase each month, or about $230 a year.
Payments for retired workers are a little higher on average, about $1,237, so the typical increase will be slightly larger. Disabled workers get a little less on average, about $1,111 a month, so their typical increase will be a little smaller.
Social Security also provides benefits to millions of spouses, widows, widowers and children.
About 8 million people who receive Supplemental Security Income, the disability program for poor people, will also receive the COLA. In all, the increase will affect about one in five U.S. residents.
Since 1975, the annual COLA has averaged 4.2 percent. Only five times has it been below 2 percent, including the two times it was zero. Before 1975, it took an act of Congress to increase Social Security payments.
"While this modest increase will help, much of the COLA will be consumed by health care and prescription costs, which continually outpace inflation," LeaMond said.
Medicare Part B premiums, which cover doctor visits, are expected to rise by about $7 per month for 2013, according to government projections. Since the premiums are deducted from Social Security payments, that would eat up more than a third of the average COLA.
The Part B premium is currently $99.90 a month for most seniors. Medicare is expected to announce the premium for 2013 in the coming weeks.
Social Security is supported by a 12.4 percent tax on wages up to $110,100. That threshold will increase to $113,700 next year, resulting in higher taxes for nearly 10 million workers and their employers, according to the Social Security Administration.
The tax increase would amount to $446 for someone who makes at least $113,700. Half the tax is paid by workers and the other half is paid by employers.