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A blog about living in and planning for retirement

For Social Security Recipients, A 1.7% Raise

People collecting Social Security checks got some tough news to swallow on Tuesday morning: Their annual cost of living raises for 2013 will be among the smallest ever.

The Social Security Administration announced today that the annual cost-of-living adjustment (or COLA) for next year will be 1.7%. For the average Social Security beneficiary, who gets about $1,130 per month, a 1.7% raise would increase the monthly check by $19.21.

Seniors got a 3.6% raise for calendar 2012, but for 2010 and 2011 they saw no increase. Since 1975, the annual Social Security cost of living adjustments have been below 2% a total of only five times. The relatively low 2013 increase “could erode buying power for millions of beneficiaries,” says Mary Johnson, a senior policy analyst at The Senior Citizens League.   Plus, a large part of the 2013 adjustment may get eaten up by increases in Medicare Part B premiums (earlier this year, the Medicare Trustees predicted that the standard Part B premium would increase by more than $9 per month in 2013, to $109.10).

The raise is determined by price inflation, which hasn’t gone up a lot in the past year.  More specifically, the COLA reflects changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which looks at price changes among goods like food and transportation that the typical worker might buy.

The use of the CPI-W has been criticized by many experts, who think that it doesn’t weigh the items it measures in a manner that makes sense for seniors (for example, some contend that healthcare costs – which are rising rapidly — are not weighted correctly in the CPI-W to reflect how much of their income seniors must pay for it).  For its part, the American Institute of Economic Research uses its own index, which researchers there think more accurately reflects the prices fluctuations that seniors might face.  Their index showed that in August, prices rose 2% compared to a year ago, more than the CPI-W figures reveal.

To be sure, the government is at least trying to make sure seniors have the money they need to buy everyday things.  “It’s hard to create an index that captures the experience of every American,” says Steve Cunningham, the director of research and education at the institute.

But for the 60% of seniors who depend on Social Security for at least half of their retirement income, this is hardly a consolation.  “The average benefit wasn’t high to begin with, and this raise isn’t going to help much,” Johnson says.

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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.

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