WASHINGTON - Social Security benefits will rise 1.5 percent in January, giving millions of retired and disabled workers an average raise of $19 a month to keep up with the cost of living.
The increase is among the smallest since automatic adjustments were adopted in 1975, and reflects the fact that consumer prices haven’t gone up much in the past year. The annual cost-of-living adjustment, or COLA, is based on a government measure of inflation that was released Wednesday.
“Yea. Whoop-de-do,” said Lance Colvin, a retired office worker in Kirkland, Wash. “That’s my opinion.”
Automatic adjustments were adopted in 1975 so benefits for people on fixed incomes would keep pace with rising prices. Some advocates for older Americans, however, complain that they sometimes fall short, especially for people with high medical costs.
Michael Hartzog of Charleston, S.C., said the small increase will make it difficult to keep up with his wife’s medical bills.
“We’ll probably need to reduce our spending even more,” Hartzog said. “I don’t know exactly how.”
Hartzog, 63, is retired after working 38 years at the Social Security Administration in South Carolina. He said his federal pension and Social Security benefits are affected by the adjustment.
The cost-of-living adjustment affects benefits for more than one-fifth of the country: nearly 58 million Social Security recipients, as well as millions of disabled veterans, federal retirees and people who get Supplemental Security Income, the disability program for the poor.
Social Security pays retired workers an average of $1,272 a month. A 1.5 percent raise comes to about $19.
Benefits are based on lifetime earnings. The more you make, the higher your benefit - to a point. For someone who retired this year at age 66, the maximum monthly benefit is $2,533. That person will get a raise of about $38 a month.
The amount of wages subject to Social Security taxes also is going up. Social Security is funded by a 12.4 percent tax on the first $113,700 in wages earned by a worker, with half paid by employers and the other half withheld from workers’ pay.
The wage threshold will increase to $117,000 next year, the Social Security Administration said. Wages above the threshold are not subject to Social Security taxes.
About 165 million workers pay Social Security taxes.About 10 million earn wages above the threshold, the agency said.
By law, the cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers, 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.
The adjustment is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.
Since 1975, annual Social Security raises have averaged just over 4 percent. Next year will mark only the seventh time the increase has been less than 2 percent. This year’s increase was 1.7 percent. There was no cost of-living adjustment in 2010 or 2011 because inflation was too low.
Lower prices for gasoline are helping keep inflation low. The average price of a gallon of regular gasoline has dropped over the past year from $3.53 to about $3.28, according to the automotive club AAA.
Over the past year, medical costs went up less than in previous years but still outpaced other consumer prices, rising 2.4 percent, according to the Bureau of Labor Statistics. Housing costs went up 2.3 percent.
To save money, Congress has considered adopting a new measure of inflation called the chained consumer price index, which would, on average, result in slightly smaller cost-of-living adjustments most years. President Barack Obama has supported the idea in previous budget talks with House Speaker John Boehner, R-Ohio, making it one of the few issues the two agree on.
Many economists argue that the chained consumer price index is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience. The White House has called it a “technical change,” though many advocates for older Americans are pledging to fight it.
If that measure were in use today, next year’s cost-of-living adjustment would still be 1.5 percent. That’s because the differences between the two inflation measures are smaller when the cost-of-living increase is small.
Information for this article was contributed by Christopher S. Rugaber of The Associated Press.
Front Section, Pages 2 on 10/31/2013