An Increase For Social Security Recipients in 2013

by Don Azarias
November 1, 2012
As the title suggests, there’ll be a cost of living adjustment (COLA) increase for Social Security recipients in 2013. Yes, you read it right we, senior retirees, will be getting an increase in the amount of check we receive each month from Social Security. Maybe it’s time to make plans for the purchase of a new toaster or a new microwave oven or new set of tires to replace those bald ones in our older model car or maybe a dinner with some of our relatives and friends at a restaurant. Or maybe we should quit our part time jobs and loosen our belts a few notches.
But, before we go on with our plans, let’s first find out how much money we are going to receive. Of course, there’s nothing wrong if, once in a while, we find ourselves enthralled by a wishful thinking. And, after being in cloud nine savoring a wishful thought, we finally find ourselves back to reality.
As had always been the case, Social Security recipients shouldn’t expect a big increase in monthly benefits come January, 2013. The rate of increase presented is pegged at 1.7 percent, which would be among the lowest since automatic adjustments were adopted in 1975. Monthly benefits for retired workers now average $1,237, meaning the typical retiree can expect a raise of between $12 and $24 a month. Again, you read it right, it’s between $12 and $24 a month which can buy a couple of gallons of gasoline. But it may not even be enough to pay for the amount of waiter’s tip after having that dinner with relatives and friends in a restaurant.
According to the Associated Press (AP), more than 56 million Social Security recipients will see their monthly payments go up by 1.7 percent next year. The increase, which starts in January, is tied to a measure of inflation recently released. It shows that inflation has been relatively low over the past year, despite the recent surge in gas prices. Like I said earlier, it is one of the smallest increases in Social Security payments in years.
The size of the increase is based on the inflation figures for September as provided by the government. It is more likely to influence a big block of voters—56 million people get benefits—just three weeks before elections for president and Congress. A vast majority of voters believe that it’s a shrewd political move by the Obama Administration and his Democratic allies on Capitol Hill.
For the readers’ information, the COLA, is tied to a government measure of inflation adopted by Congress in the 1970s. It shows that consumer prices have gone up by less than 2 percent in the past year.
We may recall that, for 2012, Social Security recipients received a 3.6 percent increase in benefits after getting no increase the previous two years.
Some of next year’s raise could be wiped out by higher Medicare premiums, which are deducted from Social Security payments. The Medicare Part B premium, which covers doctor visits, is expected to rise by about $7 per month for 2013, according to government projections. The premium is currently $99.90 a month for most seniors. Medicare is expected to announce the premium for 2013 in the coming weeks.
According to census data, the median income for all U.S. households fell by 6.6 percent, when inflation was taken into account. But the median income for households headed by someone 65 or older rose by 13 percent. And what’s the underlying reason? The 13 percent rise is, more or less, a quirky figure that artificially enhanced the retirees’ incomes due to the COLA increase as opposed to everybody else who’s struggling in this economy.
Seniors still, on average, have lower incomes than younger adults according to the Social Security Administration. Most older Americans rely on Social Security for a majority of their income. David Blau, an economist at The Ohio State University had this to say: “It’s useful to bear in mind that no other group in the economy gets an automatic cost-of-living increase in their income. Seniors are the only group.”
Still, many feel like the COLA doesn’t cover their rising costs. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.
In the past year, food prices have risen 2 percent while home energy prices have dropped 3.8 percent, according to the CPI-W. Housing costs have gone up 1.4 percent and gasoline prices have increased by 1.8 percent.
Blau said it’s common for seniors to feel like the COLA doesn’t reflect their rising costs, in part because older people tend to spend more of their income on health care. Medical costs have risen 4.3 percent in the past year as measured by the CPI-W.
To calculate the COLA, the Social Security Administration compares the average price index for July, August and September with the price index for the same three months in the previous year. If consumer prices increase from year to year, Social Security recipients automatically get higher payments, starting the following January. If prices drop, the payments stay the same, as they did in 2010 and 2011.
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.
Most older Americans rely on Social Security for a majority of their incomes, according to the Social Security Administration. Over the past decade, the COLA has helped increase incomes for seniors, even as incomes have dropped for younger workers.
I won’t blame those Social security recipients if they say, “big freaking deal” to the 2013 increase. After all they are not really getting a reasonable rate of return for their investment.